Home prices continue to point to a sustained and expanding housing recovery.

On that front, the National Association of Realtors reports that prices for single-family homes rose in 81% of U.S. cities. What's more, prices are not only rising, they are rising at a higher rate. NAR's data show the national median price for an existing single-family home rose to $186,100 in the third quarter, a 7.6% increase over the third quarter of 2011.

We've pointed out in the recent past that the good news on pricing isn't emanating from only a few sources; it's emanating from nearly all sources.

The NAR's good news on home prices is supported by CoreLogic and Trulia. CoreLogic's data show that home prices rose 5% year over year in September, posting the biggest increase since July 2006. Trulia's data show that home prices rose 2.9% year over year and 0.7% month over month in October.

This up trend in home prices is a strong selling point to clients, as is the prospect of a diminishing inventory of value-priced properties.

This time last year, we reasoned that homes were priced to produce outstanding long-term appreciation. That's turning out to be the case, but it may not be the case for long. Many homes are still priced to produce superior price appreciation, but there are certainly fewer of these homes on the market today compared to last year.

The reduction in distressed prices and value-priced inventory is attributable to the shrinking supply of distressed properties. The inventory of REO properties owned by Fannie Mae, Freddie Mac, and the FHA continues to decline, and will likely continue to do so in 2013.

An important, but frequently overlooked, demographic trend leads us to believe there will be no backsliding on rising prices and reduced value-priced inventory.

Census Bureau data show new households are being formed at the fastest rate in more than six years. T he United States added 1.15 million households in the 12 months that ended in September. That's a significant increase over the past four years, when an average of 650,000 households were formed annually.

Rising household formation means consumer confidence is also rising, as is confidence in the economy and job prospects. These factors translate to rising home demand and continually rising home prices.

Mortgage rates, on the other hand, continue to buck the trend; they're not rising. Though not moving materially lower in recent weeks, mortgage rates still don't show any inclination to move higher. Given the election results and slowing economic growth in Europe, we don't expect them to move materially higher, for at least the remainder of the year.

The four-year extension of the Obama administration means an extension of Ben Bernanke's reign as Federal Reserve chairman, and an extension of his low-interest rate policies. Across the Atlantic, slowing economic growth in Europe means more money will flow into haven investments like U.S. Treasury notes and bonds and agency securities, such as mortgage-backed securities.

Money flows from the Federal Reserve and private European investors into U.S. government securities ensure mortgage rates will remain low, at least for the near term.

Courtesy of Jessica Regan.

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