US home prices jump most in nearly seven years

WASHINGTON (AFP) - US home prices leaped the most in nearly seven years on an annual basis in March as the housing recovery strengthens, according to a closely watched report released on Tuesday.

Benefiting from tight inventory, home prices were up 10.9 per cent over March 2012, the largest increase since April 2006, according to the S&P/Case-Shiller 20-city price index.

Month-on-month the gain was also strong, with March prices up 1.1 per cent following a 1.3 per cent rise in February, on a seasonally adjusted basis.

It was the third straight month of gains for the index, which covers the 20 largest US urban areas.

But prices remained at 2003 levels, still about 29 per cent below their June-July 2006 peaks.

Fifteen of the 20 cities individually showed a monthly gain, up from 11 in February. San Francisco prices jumped the most, by 3.9 per cent.

"Other housing market data reported in recent weeks confirm these strong trends: housing starts and permits, sales of new homes and existing homes continue to trend higher," said Dr David Blitzer, chairman of the Index Committee at S&P Dow Jones.

Analysts pointed to the solidifying recovery in the housing market as a bright spot in the world's largest economy, still struggling with modest growth almost four years after exiting deep recession.

"These house price appreciations are an important tailwind for the recovery," said Mr Harm Bandholz, chief US economist of UniCredit Research.

Mr Bandholz estimated a sustained 10 per cent rise in house prices would boost economic growth by about one half of a percentage point.

Mr Jim O'Sullivan of High Frequency Economics agreed.

"Strengthening in home prices is a plus for growth through various channels, including increased consumer spending because of wealth and confidence effects, increased incentive to buy before prices go up some more, and increased incentive to lend because of less chance of mortgages turning delinquent," Mr O'Sullivan said.

Mr Bandholz dismissed concerns that the housing market was entering a new price bubble as "certainly premature". Real-estate valuations are in line with fundamentals such as rents and income, he said.