Home prices climbed in October by the most in more than two years as the real-estate market rebounds and contributes to the U.S. economic recovery.
The S&P/Case-Shiller index of property values in 20 cities increased 4.3 percent from October 2011, the biggest 12-month advance since May 2010, the group said Wednesday in New York. The median forecast of 30 economists in a Bloomberg survey projected a 4 percent gain.
Property values will probably keep heading higher as record-low mortgage rates, a growing population and an improving economy spur demand for housing. The turnaround in real estate is buoying household confidence and wealth, one reason why consumer spending is growing even as concern mounts that lawmakers will fail to stave off looming tax increases.
“The housing recovery is moving along quite well,” Sam Coffin, an economist at UBS Securities LLC in Stamford, Connecticut, said before the report. “Home prices are expected to keep rising as demand improves. Household formation has picked up, and that soaks up inventory pretty quickly.”
Estimates in the Bloomberg survey ranged from unchanged to a 4.9 percent gain.
The price increase accelerated from a 3 percent advance in the 12 months ended September. The Case-Shiller index is based on a three-month average, which means the October data were influenced by transactions in August and September.
Home prices adjusted for seasonal variations rose 0.7 percent in October from the prior month, with 17 of 20 cities showing gains. Las Vegas showed the biggest gain with a 2.4 percent advance, followed by San Diego with a 1.7 percent increase.
Property values dropped the most in Chicago, which fell 0.7 percent over the month.
Unadjusted prices in the 20 cities dropped 0.1 percent in October from the prior month. Prices tend to decrease during this time of year, the group said.
The year-over-year gauge provides better indications of trends in prices, according to the S&P/Case-Shiller group. The panel includes Karl Case and Robert Shiller, the economists who created the index.
Eighteen of the 20 cities in the index showed a year-over-year increase, led by a 21.7 percent jump in Phoenix. Detroit followed with a 10 percent gain. Chicago and New York posted declines. Year-over-year records began in 2001.
“It is clear that the housing recovery is gathering strength,” David Blitzer, chairman of the index committee, said in a statement. “Higher year-over-year price gains plus strong performances in the southwest and California, regions that suffered during the housing bust, confirm that housing is now contributing to the economy.”
Declining borrowing costs have underpinned demand for those able to get financing. The average rate on a 30-year, fixed mortgage was at 3.37 percent last week, close to the 3.31 percent from a month earlier that was the lowest in data going back to 1972, according to McLean, Virginia-based Freddie Mac.
“Record-low interest rates, attractive home prices, pent- up demand, a lower supply of existing homes for sale, improvement in the economy and employment, and greater optimism are all helping drive the housing recovery,” Ara Hovnanian, chief executive officer of homebuilder Hovnanian Enterprises Inc., said on a Dec. 13 earnings call. “This is occurring in spite of the restrictive mortgage lending environment and the number of underwater existing home buyers.”
Americans bought previously owned homes in November at the fastest pace in three years, figures from the National Association of Realtors showed Dec. 20 in Washington.
The job market remains an area that is holding the world’s largest economy back from a more pronounced rebound, explaining why Federal Reserve policy makers this month said they would keep the benchmark interest rate near zero as long as unemployment remains above 6.5 percent, and if the Fed projects inflation of no more than 2.5 percent in one or two years.
In addition, if Washington lawmakers fail to reach a deal on averting tax increases and spending cuts set to take effect in January, subsequent declines in business and consumer spending may also drive down economic progress.
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