For the past year, we've been reporting on home prices generally moving in one direction – up. This is certainly preferable to the years leading up to early 2012, when we were reporting on prices generally moving in one direction – down.

As for the current price trend, the S&P/Case-Shiller Home Price Index shows prices continued to move higher in January. What's more, prices moved higher at an accelerating rate. All 20 cities the index covers posted price gains for the second-straight month. Year over year, prices were up nearly 10% – the largest annual increase in seven years.

Data from Lender Processing Services also support a sustained price trend. Its data, which focuses on non-distressed transactions in 15,500 zip codes, show the average home price increased 0.3% to $208,000 in January. Year over year, the average price is up 6.7%.

New homes are leading the price charge. Data from the U.S. Census Bureau show the median sales price of a new home soared to $246,800 in February, a 9% increase over the median price of $226,400 in January.

We're not surprised new home prices are surging. Demand is improving, thanks in part to more homeowners moving into a positive equity position. At the same time, there's a dearth of new homes on the market. The downside is that lack of inventory is hurting sales growth. The annualized sales rate of 411,000 new homes in February is 4.6% lower than the 431,000-home sales rate in January.

Inventory has improved, but not by much. New homes for sale increased to 152,000 units in February from 150,000 units in January. The combination of a dip in sales and a rise in supply put inventory at 4.4 months in February compared to 4.2 months in January. We expect low inventory will continue to restrict sales growth over the next couple months.

Sales of existing homes are also likely to remain restricted. Limited buyer choices have constrained contract signings. The NAR's Pending Home Sales Index dipped 0.4% in February. The index points to low-to-flat sales growth as we head into the spring selling season.

The upside to stagnating sales and increased demand is continued price gains. Rising prices will lift more homeowners into positive equity, which in turn, will motive more homeowners interested in moving to list their properties.

Rising prices will lead to more supply. We mentioned many times during the grips of the hard sell-off of 2008 and 2009 that prices would fall only so far before buyers would rush in to soak up the excess supply. Rising prices will have a similar salutary effect, only in reverse – rising prices, rising supply.

As for mortgage rates, we expect the trend to remain flat at the new lower level. The banking crisis in Cyprus sent money to U.S. Treasury notes and mortgage-backed securities, which helped reverse the rising-rate trend. We expect rates to hold these levels for at least a couple weeks. We say that because the influential 10-year Treasury note is again yielding below 1.9% (two weeks ago, it was yielding over 2%). The low yield should hold, because once the crisis in Cyprus passes, it's looking more likely a developing banking crisis in Spain will take its place.

 Courtesy of Jessica Regan.

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