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NEW REPORT ILLUSTRATES PARTISAN TENDENCIES IN HOME PRICE GAINS While home price gains continue to exceed historical norms at a national level, the latest asking price report from Trulia reveals marked differences in price gains between predominantly Democratic and predominantly Republican metros. Asking prices rose 12.5 percent year-over-year in October in "blue" metros and 11.1 percent in "red" metros, according to the Trulia Price Monitor, which observed the 100 largest metro areas in the nation, categorizing them by partisanship based on local results of the 2012 presidential election. "Home prices are skyrocketing in many of America's bluest metros, like Oakland and Detroit," said Jed Kolko, chief economist for Trulia. Kolko added, "The home-price rebound has bypassed most of America's reddest metros. But Red America shouldn't turn green with envy at Blue America's recovery: Housing remains much more affordable in red metros than blue metros, and unemployment is lower, too." In general, blue metros suffered more from the housing crisis than red metros, according to Trulia. The company contends the uneven housing and economic recoveries among the two parties could aggravate political partisanship. In particular, representatives from blue metros will face pressure to reduce unemployment and make homeownership more attainable, Trulia says. Annual price changes in the top five reddest metros range from 2.2 percent in Knoxville, Tennessee, to 12 percent in Fort Worth, Texas. Fort Worth was the only one of the reddest metros to post a double-digit price gain over the year in October. On the other hand, four of the top five bluest metros posted double-digit price gains over the year in October with the highest gain in Detroit at 24.5 percent, and the lowest in New York at 7.3 percent. As mortgage rates rise, housing inventory increases, and investor activity subsides, prices gains will continue to slow, Trulia warns. October's 0.6 percent monthly price gain is the second-lowest price increase in seven months, according to the Trulia Price Monitor. The annual price increase in October was 11.7 percent. Rents are rising at a slower pace, posting a 2.7 percent annual gain in October, according to the Trulia Rent Monitor. RISING RATES POSE GREATER THREAT THAN INITIAL INDICATIONS While maintaining that tight credit conditions and rapid price gains present the greatest threats to the housing recovery, Capital Economics is ready to acknowledge that rising mortgage rates may provide more drag than the firm's analysts first thought. Tracking mortgage applications (as reported by the Mortgage Bankers Association) from 44 May through September, Capital Economics determined that refinancing activity has taken the biggest hit from the 120-basis point climb in rates with a decline of 70 percent. While the decrease in refinance activity isn't necessarily reflective of changes in housing market demand, the 17 percent drop in purchase applications over the same period is another story. "[T]hat was enough to undo all of the improvement in home purchase applications that previously appeared to be underway," property economist Paul Diggle wrote in the company's latest US Housing Market Focus. "This has put a dent in hopes that mortgage-dependent buyers are playing a bigger role in the housing recovery." Tracking sales, Diggle noted numbers were up initially—an expected result as buyers rushed to avoid further hikes—and then down as the pipeline cleared. The most recent data has been more encouraging, though he says those improvements have largely been driven by investors and cash buyers, groups that are immune to higher mortgage interest rates. As far as prices are concerned, the lag between sales and price changes makes it hard to tell what the effects have been. However, "[p]rice gains appear to be slowing anyway and, in time, the rise in mortgage interest rates may, at the margins, add to this slowdown," according to Diggle. There is some good news, though. Heightened rates will raise lenders' return on new loans, helping to fill the gap left by the decline in refinancing and potentially leading to looser credit conditions. "The bottom line is that, three years after activity began picking up and two years into the upturn in house prices, the U.S. housing recovery still faces a number of hurdles," Diggle concluded. "To our minds, tight credit conditions, an over-reliance on investment buyers, and overly-rapid price gains are all potentially more serious challenges than higher mortgage interest rates," he said. "Nevertheless, the steady rise in rates to date, and the likelihood that rates will rise further still, is another reason to expect the pace of the U.S. housing recovery to slow from here."

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