Auto sales, home prices help buoy weak U.S. economy

By CHRISTOPHER S. RUGABER, TOM KRISHER and DEE-ANN DURBIN

Associated Press

Published: Tuesday, Oct. 2 2012 9:30 p.m. MDT

The steady rise in home prices may also be affecting voter perceptions of the economy. The price increases coincide with higher sales fueled by record-low mortgage rates. The gains could embolden people who had been spooked by their shrunken home values or wary of selling or investing in a home.

A gauge of prices calculated by CoreLogic, a private data provider, jumped 4.6 percent in August compared with August 2011. It was the sharpest year-over-year gain in more than six years.

Other home-price measures have also risen. The Standard & Poor's/Case Shiller index rose in July compared with a year ago, a second straight increase. And an index compiled by a federal housing regulator has reported annual increases.

Only 20 large cities out of 100 that CoreLogic tracked showed declines in the 12 months that ended in August. That compared with 26 in July.

Home prices are still 30 percent below their peak in June 2006, according to Case-Shiller. That was the height of the housing boom.

"The housing market's gains are increasingly geographically diverse, with only six states continuing to show declining prices," said Mark Fleming, chief economist for CoreLogic.

The six states with price declines are Kentucky, Connecticut, Alabama, New Jersey, Illinois and Rhode Island.

The auto and housing industries are benefiting from the historically low interest rates engineered by the Federal Reserve. The Fed last month launched a mortgage-bond buying program to try to drive down mortgage rates further. The average rate on a 30-year fixed-rate mortgage is already a record-low 3.4 percent.

Since 2008, the Fed bought more than $2 trillion in Treasurys and mortgage bonds to try to drive down long-term rates. Besides lower mortgage rates, lower long-term rates have led to cheaper auto loans.

Joseph LaVorgna, chief U.S. economist at Deutsche Bank, said housing and auto manufacturing are providing critical support for a still subpar economy.

And he pointed to a connection between the two: Rising home prices make homeowners feel more secure and more willing to buy expensive items such as cars.

"Housing is a lifeline," LaVorgna said. "We would be a lot worse off without it."

Krisher and Durbin contributed from Detroit. AP Business Writer Anne D'Innocenzio in New York also contributed to this report.

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