For the first time in eight months, home prices in major U.S. cities increased slightly during the first quarter of 2011, according to new data from Standard & Poor’s.
But this is no return to the boom years of the housing bubble. More people buying homes locked in fixed rates rather than gamble with interest rates that may change over time. And more people refinancing their homes chopped their loan times in half, from 30 years to 15, suggesting a desire to pay more up-front for long-term stability.
“In short, better news, but still a lot of questions and a long way to go,” David M. Blitzer of S&P’s ratings agency, said in a press release.
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In thirteen American cities, including San Francisco, Atlanta and Cleveland, home prices increased from March to April of this year. Washington, D.C. had the biggest change, with a 3% increase in home prices in just one month. Six cities, including hard-hit Las Vegas, Tampa and Miami, continued to watch housing prices fall. Detroit had the biggest fall, losing 2.9% of its average home value in April, according to the report.
Builders began construction of slightly more homes in May than they did in April, but the total number of new housing starts is still close to its 30-year low, S&P found. Sales of existing homes rebounded a little in May, too, but remain 35% below the rate in 2005.
Meanwhile, homeowners are choosing different types of loans. More than 95% of people refinancing homes obtained fixed-rate mortgages, as opposed to mortgages with rates that rise or fluctuate over time, according to a housing report by Freddie Mac, the taxpayer-owned mortgage giant. Just under 35% of people refinancing their homes switched from a 30-year loan to loans of 15 or 20 years, the highest such rate since 2004.
They were following incentives set by banks, which are offering lower rates for shorter loans. The average interest rate on a 15-year mortgage is now 3.69%, according to a report by Freddie Mac, compared to an average of 4.51% for 30-year loans.
“For borrowers motivated to refinance by low interest rates, they could obtain even lower rates by shortening their term,” Frank Nothaft, Freddie’s chief economist, said in a press release.
Image: karol m, via Flickr