US house prices in biggest annual rise for seven years

House in Encinitas, California
Image caption California is among the states leading the housing recovery

US house prices rose 12.4% over the 12 months to the end of July, the biggest annual increase since February 2006, according to a closely-watched measure.

The rise was revealed in the latest S&P/Case-Shiller Home Price Index.

The index measures single-family home prices across 20 cities, with 13 cities showing a rising annual growth rate.

Last week, the US Federal Reserve decided to maintain its effort to boost the economy, which involves buying $85bn worth of assets every month.

That scheme, known as quantitative easing (QE), is credited with boosting the housing market last year by driving down mortgage rates to record lows.

However, David Blitzer from S&P Dow Jones Indices said that effect had worn off.

"Following the increase in mortgage rates beginning last May, applications for mortgages have dropped, suggesting that rising interest rates are affecting housing.

"The Fed's announcement last week that QE3 bond buying will continue for the time being may have only a limited, though favourable, impact on housing," he said.

Prices rose 0.6% on a seasonally adjusted basis in July compared with the month before, which was lower than analysts' forecasts and down from June's increase of 0.9%.

Regaining ground

Las Vegas saw the biggest annual gain of 27.5%, while San Francisco, Los Angeles and San Diego all saw rises of more than 20%.

But the survey points out that house prices in those cities are still well below the peaks hit before the 2008 financial crisis.

Of the 20 cities surveyed, New York saw the lowest annual increase of 3.5%.

Detroit, which filed for bankruptcy in July, saw an annual growth rate of 16.9%. However, the report says that Detroit is the only city where house prices are still below the levels reached in January 2000.

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