Home Prices Rise by Most in Seven Years

U.S. home prices jumped 12.2% in May from a year ago, the most in seven years. The increase suggests the housing recovery is strengthening.

Real estate data provider CoreLogic said Tuesday that home prices rose from a year ago in 48 states. They fell only in Delaware and Alabama. And all but three of the 100 largest cities reported price gains.

Prices rose 26% in Nevada to lead all states. It was followed by California (20.2%), Arizona (16.9%), Hawaii (16.1%) and Oregon (15.5%).

CoreLogic also says prices rose 2.6% in May from April, the fifteenth straight month-over-month increase.

Steady hiring and low mortgage rates have encouraged more Americans to buy homes. Greater demand, a limited number of homes for sale and fewer foreclosures have pushed prices higher. Prices are still 20% below the peak reached in April 2006, according to CoreLogic.

Sales of previously occupied homes topped the 5 million mark in May for the first time in 3 ½ years. And the proportion of those sales that were "distressed" was at the lowest level in more than four years for the second straight month. Distressed home sales include foreclosures and short sales. A short sale is when a home sells for less than what is owed on the mortgage.

Home sales are expected to increase in the coming months. That's because the number of people who signed contracts to buy homes rose in June to the highest level since December 2006. There's generally a one-month to two-month lag between a signed contract and a completed sale.

One worry is that higher mortgage rates could slow the housing recovery. Still, rates remain low by historical standards. And increases in rates could boost home sales. That's' because many Americans may act to lock in the lower rates before they rise further.

A survey by the University of Michigan released last week found more Americans believe it is a good time to buy a home because both rates and prices are just starting to rise.

Rates have been trending higher for two months. And the average rate on a 30-year fixed mortgage leapt to 4.46% last week, according to mortgage buyer Freddie Mac. That's the highest in two years and a point more than a month ago.

Mortgage rates surged after Federal Reserve chairman Ben Bernanke said last month that the Fed could scale back its bond buying later this year and end it next year if the economy continued to strengthen.

Economists say that higher mortgage rates are unlikely to stifle the housing recovery. A more critical issue is whether potential buyers can get loans. There are signs that banks have become more willing to extend mortgages.

Strong June Auto Sales Led by Pickups

U.S. buyers snapped up new cars and trucks in June at a pace not seen since before the recession.

Continuing demand for big pickups helped boost sales for Detroit's automakers. Ford said Tuesday that its sales rose 14 percent, while Chrysler's were up 8 percent. Volkswagen's sales fell 3 percent.

Analysts say they don't see much that could slow the sales momentum of the first six months. The factors that juiced sales — low interest rates, wider credit availability, rising home construction and hot new vehicles — are likely to remain in place. So far, hiccups in the stock market, higher taxes and fluctuating gas prices haven't dampened demand.

"I think the fundamentals for continued growth in the new vehicle sales industry are intact," Chrysler's U.S. sales chief, Reid Bigland, said last week.

Analysts estimate that U.S. auto sales rose 6 percent to 8 percent in June compared with the same month last year. The auto pricing site TrueCar.com predicts that dealers sold cars and trucks at an annualized rate of 15.7 million last month, the best rate since December 2007.

Sales of pickups — which have been selling at a rate three times faster than the rest of the industry has — continued at a strong pace in June. Ford sold just over 68,000 F-Series trucks, up 24 percent from last June and the best June for trucks since 2005.

Chrysler Group sold nearly 30,000 full-size Ram pickups, up 24 percent from last June. Small businesses have been replacing their aging trucks as home construction has picked up.

Young graduates may have contributed to a rise in small car sales, said Kelley Blue Book analyst Alec Gutierrez. Gas prices, which averaged $3.60 a gallon nationwide in June and were higher than a year ago, also may have caused some buyers to look for more fuel-efficient models, he said.

Sales of Ford's recently updated Fiesta subcompact more than doubled to 9,363, while Chrysler sold nearly 6,500 Dodge Dart small cars.

Consumer confidence hit a six-year high in June. And the Standard & Poor's 500 index had its best first half since 1998, up 12.6 percent, although there was some volatility late last month.

At the same time, auto loan rates remained near historic lows in June. The rate on a four-year new-car loan is averaging 2.7 percent, according to Bankrate.com.

The rate could start rising — slowly — by the end of this year. Federal Reserve Chairman Ben Bernanke said last month that the Fed later this year may slow a bond-buying program that has suppressed long-term interest rates.

Bernanke's comments didn't affect June sales, analysts said. It often takes buyers six months or more to research and buy a new car, and a stray comment usually isn't enough to sway them. But if the Fed acts as planned, buyers worried about higher interest rates could rush to buy by the end of this year. F

ord said two of its best sellers, the Fusion sedan and Escape SUV, were flat compared with last year, when Ford was discounting older models to make way for the updated ones that are now on sale. Ford's Lincoln luxury brand was down 1 percent.

Chrysler, majority-owned by Fiat SpA of Italy, also had some weak spots. Jeep sales were flat as the company halted production of the Liberty to get ready for the launch of the new Jeep Cherokee in August.

Jeep may also have been squeezed by Chrysler's public flap with the government last month over the safety of some older-model Jeeps. And sales for the Chrysler and Fiat brands both rose 1 percent.

What Doubled Student Loan Rates Mean for You

Congress failed in a last-ditch effort to reach a deal on student loans. As a result, interest rates on some federal student loans doubled to nearly 7 percent on Monday.

Though millions of college students taking out new student loans this fall will see interest rates that are twice what they were this spring, they won't really get hammered by the increase until they graduate.

Here are some key points to consider about the student loan rate increase as borrowers contemplate how to cope:

What federal students loans are impacted by the doubling of interest rates?

Not all federal student loans are impacted. Only rates on new, subsidized federal Stafford loans doubled from 3.4 percent to 6.8 percent on July 1. Rates on existing subsidized Stafford loans will remain at 3.4 percent. Rates on new and existing unsubsidized Stafford loans will remain at 6.8 percent. Rates on federal PLUS loans will stay the same as well, at 7.9 percent.

Will this double my monthly loan payments?

The doubling of the interest rate may sound dramatic, but it does not double the loan payments. Most of the loan payment goes to pay down the principal balance of the loan. On a 10-year repayment term, the monthly payment will increase by only about one-sixth, says Mark Kantrowitz, publisher of Edvisors.com, a network of college financial planning and scholarship websites.

What does this doubling in student loan rates mean for the average borrower?

Only about two-fifths of undergraduate students graduate with subsidized Stafford loan debt. The average amount of subsidized Stafford loan debt at graduation is about $9,000 (or $11,000 for those who receive a Bachelor's degree). Based on that amount of loan debt, Kantrowitz calculates the borrower's loan payment will increase by $18 a month on average on a 10-year repayment term (or $24 for a Bachelor's degree recipient.)

Kantrowitz is also the founder of Finaid.org, which has a loan repayment calculator that you can use to figure out your monthly payment on federal and most private student loans.

Do I have to make these increased payments immediately?

Most new borrowers will not receive subsidized federal Stafford loans until the fall, so they will not see the increase until then -- and the real impact on their wallets will come even later. The rate increase only affects a student once he or she leaves school. No interest is charged on a subsidized Stafford loan while the student is enrolled in college. So borrowers won't have to make the increased monthly payments on these loans until after graduation day.

Could rates come down if Congress decides to act later this summer?

Certainly Congress could make a change to lower interest rates and make it retroactive to July 1. But a retroactive change would only apply to those loans that have not yet been disbursed by the U.S. Department of Education.

Last year Congress passed two laws to implement a one-year extension to the 3.4 percent interest rate. The first law authorized the Education Department to delay disbursements on subsidized Stafford loans to July 6, 2012. The second law, which was enacted on July 6, implemented the extension to the 3.4 percent interest rate. However, policymakers are still far apart on key issues, such as whether there should be a cap on the interest rates. A retroactive change in rates may be unlikely.