This is Tim: Cook on iOS in the Car, iPhone prices, and low-cost devices

Apple’s fiscal third quarter earnings, announced Tuesday, showed a drop in the company’s profits year-over-year. But with new June-quarter records for the iPhone and revenue, and income still in the billions, Apple continues to forge ahead. During the usual conference call with analysts, CEO Tim Cook took time to talk about the low-end opportunities of the smartphone market to iOS’s forthcoming car integration.

Here’s an edited transcript of what Cook had to say on Tuesday about Apple’s most recent quarter.

From an iPad point of view, or iPad and iPhone, we reduced inventory, and reduced it fairly significantly. iPad was down over 700,000 units in the beginning of the quarter, and iPhone was down over 600,000. As you know from working with us over several quarters, we typically don’t like to have any more inventory than we need. And so if we can find a way to reduce, we do so, and we’ve done that in both of these cases. We also had slight decreases in the Macintosh area, and iPods.

From a growth point of view, for Apple, our key catalyst will be—always will be—new products and new services, and these are both in existing categories that we’re in, and in new categories. In addition to this, we have opportunities in distribution, from carrier relationships to expanding our retail stores, expanding our online store, and continuing to expand the indirect channel. And we also have a market expansion opportunity; Peter mentioned enterprise in his comments, and the share positions that we have there are over 60 percent, in both iPad and iPhone. And I think we’re at the very front end of that. And so I think we have lots of growth opportunities. And then I don’t subscribe to the common view that the—sort of “higher end”, if you will—smartphone market has peaked. I don’t believe that. But we’ll see, and we’ll report our results as we go along.

For us, if you look year over year, we had a 2.4 million unit decline, but 80 percent of that (or 1.9 million units) were just due to changes in channel inventory. As I think Peter referenced earlier, we reduced by over 700 in the current quarter, and in the year-ago quarter had an increase of 1.2 [million]. And so the underlying sell-through declined by just three percent. If you look at the situation that we were in in the year-ago quarter, we had just announced the third-generation iPad, which was our first iPad with a Retina display. We’d announced in March and said that this was our first full quarter. And so from what Peter and I expected 90 days ago, we hit within the midpoint of the range that we expected to hit in on iPad unit sales. And so it was not a surprise to us.

In terms of how other people are doing, I don’t know. What I can tell you is, the most recent data I’ve gotten, which actually just came out, I believe, this morning, is that the iPad Web-share data shows that, through the quarter, we accelerated further and are now—iPad accounts for 84 percent of the Web traffic from tablets. Which is, y’know, absolutely incredible. And so if there are lots of other tablets selling, I don’t know what they’re being used for. Because that’s a pretty, y’know, basic function, is Web browsing.

We feel really good about where we are. We had, as Peter had mentioned earlier, an incredible quarter in U.S. education, setting a new record for iPad. We’re really happy to be selected for the first stage of the 660,000-unit rollout at L.A. Unified and the really bold move they’re making to change teaching and learning. And we had double-digit unit growth in China for iPad, in Japan, in Canada, in Latin America, in Russia, in the Middle East, and in India. And so we’re really happy with what we saw.

From an iPhone point of view, with the moves that we’ve made on [iPhone] 4, and with iPhone 5 continuing to be the most popular model, we saw very strong sales in several of the emerging markets, or pre-paid markets. India was up over 400 percent, Turkey and Poland were both up over 60 percent, Philippines were up about 140 percent. And these were—in addition we saw very strong iPhone sales in several of the development markets; for example, the U.S. was up over 50 percent, Japan up over 60, the U.K. about 50. And so we had several regions where iPhone growth actually accelerated from the previous quarter—which is an unusual pattern for us, and we were very very happy with this.

China was weaker in the quarter, although the data sheet that obviously focuses on revenue doesn’t really tell the complete story here. If you look at sellthrough—as we’d mentioned earlier with the inventory changes, it’s important to do that—so our sellthrough in China was only down four percent from the year-ago quarter, when you normalize for channel inventory. Hong Kong was actually down more significantly than that; mainland China was actually up year over year, was up 5 percent.

But that is a lower growth rate than we have been seeing, and y’know I attribute it to many things, including the economy there clearly doesn’t help us nor others. In Hong Kong—Hong Kong is an international shopping haven, as you know, for not only tourists but also some resellers. And we saw more dramatic downturns there, and it’s not totally clear exactly why that occurred. But it was down on a sell-through basis by about 20 percent, and so that weighed greater China down as you can see on your data sheet.

We haven’t announced anything relative to a trade-in program, so what you’ve seen is rumor-oriented. There are a number of channels that do trade-in programs; now, not only in the U.S., but in different regions and the reason that it’s so attractive around iPhone is that the residual value of an iPhone stays so high and there’s so much demand for it. And so that makes the trade-in programs more lucrative to, or win-win from, many points of view. But we haven’t announced anything that we’re—that about anything.

[Are you opposed to it?]

No, I’m not opposed to [trade-in programs]. I see channels doing it, and I like the environmental aspect of it, and so that part of it really is encouraging to me.

I think it’s important to put it in perspective: If you combine the results and we haven’t in greater China, the revenues there were 4.9 billion for the quarter; and so that’s about 14 percent of the company. Which is very significant, and a few years ago, that was in the hundreds of millions. And so we’ve grown our business there significantly. We have a very strong market there, and in the last twelve months we’ve done 27 billion on a trailing basis. And so it’s a huge, huge business for us.

Underlying the results are—if you look at iPad, sell-through in greater China was up 8 percent, but sell-through in mainland China was up 37 percent. So iPad’s doing remarkably well. The latest share numbers we’ve seen on—for iPad, for the tablet market—is over 50 percent, and year to date iPad units are up 48 percent year-over-year. And so there’s been great growth there.

From an ecosystem point of view, we continue to attract a lot of developers from China. We now have about a half a million developers in China that are working on iOS apps, and that’s up almost 70 percent year-over-year. And so I think that’s fantastic, not only for China, but for outside of China, as many offer their apps through—in different stores around the world.

We’re obviously paying developers quite a bit, and so that’s furthering the ecosystem of developers. We’re continuing to invest in distribution; we’re going to double the number of retail stores there over the next two years; and we’re continuing to lift iPhone point-of-sales and iPad point-of-sales, both of which are currently lower than where we would like them or need them to be. But we’re doing that very cautiously because we want to do it with great quality.

And so I continue to believe that in the arc of time here, China is a huge opportunity for Apple, and I don’t get discouraged over a 90 day kind of cycle that can have economic factors and other things in it.

The reference that Peter made earlier was to the iPhone 4, and what we’ve seen is that the number of first-time smartphone buyers that the iPhone 4 is attracting is very very impressive. And we want to attract as many of these buyers as we can. And we saw that beginning to happen toward the end of the Q2 timeframe, as I’ve referenced on last quarter’s call, and we did that on a wider-spread basis—offered the more-affordable pricing on a wider-scale basis this quarter—and continued to be very happy with what we saw.

Where iPhone 5 continues to be the most popular iPhone by far, we’re really happy to provide an incredible high-quality product with iPhone 4 running iOS 6 to as many first-time smartphone buyers as we can. And I think it’s proven to be exactly a great product for that buyer.

There’s always more weapons [to use in the market]. And y’know, we have more than one tool in the toolbox. But y’know it’s a great way for a buyer to get into the iOS ecosystem, and the customer sat[isfaction] ratings that we have with iOS 6 and the stickiness of the platform is huge. And so it’s great for customers, and we’re very glad to offer it.

We’ll see, Gene. Y’know, we’re working up some stuff that we’re really proud of, and we’ll see how it does and we’ll announce things when we’re ready.

I would classify [our relationship with our current carrier partners] as being good. The press I’ve seen on Russia probably needs some color, and the articles I’ve seen suggested that we are not selling iPhone through carrier-owned stores. If that’s the one that you’re referencing… If you look at the Russian market, over 80 percent of smartphones are sold in retail. They’re outside of carrier-owned stores. And we sell through a number of national chains there. And in fact, our activations in Russia for iPhone were—set a record last quarter, it was our highest quarter in Russia ever. And so we’re really happy with how we’re doing there.

We do continue to sell through some carrier-owned stores as well, but obviously the contribution is much less than the retail organizations and so forth. And so I think that’s probably not well-understood there. We are continually looking for other relationships to both add and enhance the ones we’ve got, and I do think there’re some opportunities there for us.

Sure. We certainly have no problem procuring [supplies]. In terms of where we see pricing headed, and this would have been factored into the gross margin guidance that Peter gave earlier, despite the very very weak PC market, DRAM pricing has actually increased. And we see continued upward pressure in this area. NAND pricing is fairly stable, and it’s following seasonal trends we would expect. Both LCDs and HDDs have, the prices have fallen, and we would expect further reductions in these areas.

And if you look at other commodities, they appear to be in a supply/demand balance, and so we would expect the pricing to decline on these at sort of historical levels.

I think about it differently than that. The way I think about it is we’re here to make great products. And we think that if we focus on that, and do that really really well, that the financial metrics will also come. And so we don’t see those two things being mutually exclusive. We see them having great overlap and I think if you look at how the company’s executed over many years, it would suggest that that’s possible.

We start at the product, because we believe that the most important thing is that our customers love the products and want them. Y’know, if you don’t start at that level, you can wind up creating things that people don’t want. And so we’ve tried very hard to focus on products and customers—enriching customers and making great products.

In terms of… we don’t project ASPs, we do give guidance—we have an assumption on the ASP for the current quarter in our guidance, obviously, to come up with the numbers that Peter talked about earlier. If you look underneath the iPhone numbers as I think Peter alluded to earlier, we saw significant growth, clearly, in the lower price point, year-over-year, which for us is iPhone 4. It’s still a great product.

And that was one of the things—and the iPhone 5 doing well—that allowed us to significantly beat what I think was probably the vast majority of expectations out there for iPhone sales. And so, obviously if we do a lot better at the low end, then we sell more of those, and the mix changed—it has changed across the last year. If you look at [iPhone] 3GS last year, which was in a comparable position as our entry product, we’re selling a lot more [iPhone] 4s than 3GSs. I think we both understand the market much better, and have our fingers on the pulse of distribution in different countries, and so forth this year. I’m sure that we’ll get better and better at that over time, and how that will change mix, I don’t know.

Typically for us, a product has the highest mix during its initial few months of sales. And so you’d have a natural kind of seasonal decline over time of the product cycle. That generally happens on iPhone, it generally happens on iPad, we’ve seen it happen on the Mac over many years. And so I don’t see anything that fundamentally would change that, but again we’re going to look at this thing quarter by quarter, and tell you how we look at the quarter, and give you guidance for it as we go.

I see it as very important. It is a part of the ecosystem, and so just like the App Store’s a key part of the ecosystem, and iTunes and all of our content are key, and the services we provide from iMessaging to Siri and so forth, having something in the automobile is very very important, it’s something that people want, and I think that Apple can do this in a unique way and better than anyone else. And so it’s a key focus for us.

Bits Blog: Two Tales of Plummeting Prices

Timothy A. Clary/Agence France-Presse — Getty Images, Mark Blinch/Reuters Microsoft’s Surface tablet, left, cost $500 when it was released in October, but it is now $350 on Microsoft’s Web site. The BlackBerry Z10, right, was $200 with a contract when it was released; now it’s free with an AT&T contract.

  When a new digital device gets a big price cut, it’s usually good news for consumers, but it’s usually a sign of poor sales, too — even if the maker of the device doesn’t want to admit that publicly.
Take the BlackBerry Z10 smartphone, which, after disappointing sales, dropped significantly in price just a few months after release.

When it was released in the United States in March, the Z10 cost $200 with a contract. Now the Z10 is free at Best Buy with an AT&T contract, or for $50 with Verizon. In Canada, where the Z10 was released in February and where sales were stronger, the smartphone is $100 to $150.

Or take Microsoft’s Surface tablet. It cost $500 when it was released in October, but it is now $350 on Microsoft’s Web site. Analysts estimate that demand for the tablet was weak during the holiday quarter.
It has become a tradition for company representatives to shrug off a major price cut and say that these types of sales always happen. That was Nokia’s explanation when it halved the Lumia 900’s price soon after release, and AT&T’s explanation for the price cut of the HTC First, the Facebook phone. Neither of those devices were selling well.

Meanwhile, the price of the iPhone 5, one of the best-selling smartphones in the world, hasn’t changed since its release in September.
Adam Emery, a BlackBerry spokesman, said that trimming the price of a smartphone was part of normal procedure:

Like any other smartphone maker, we, along with our partners, make adjustments as we roll out new elements of the product portfolio. And with the recent arrival of our flagship BlackBerry Q10 smartphone, now is the right time to adjust the price for the BlackBerry Z10 all touch device. As we have said, we will be introducing several BlackBerry 10 devices before the end of our fiscal year. It’s part of life cycle management to tier the pricing for current devices to make room for the next ones. This is just one element of our marketing strategy that will ensure we remain aggressive in a very competitive market landscape.

Microsoft’s response is a bit different. The software maker, which is a new player in the mobile hardware market, says it has been happy with past promotions it has done for the Surface, like one in the United States in which customers received a free keyboard cover when they bought the tablet. So it says it is sharply cutting the price to get the tablet into even more people’s hands:

We’ve been seeing great success with pricing and cover promotions over the past several months on Surface RT in the U.S. and other markets. People who buy Surface love Surface, and we’re excited about all those additional people out sharing their excitement for Surface with other people.

Sales for mobile devices do happen. But Jan Dawson, a telecom analyst at Ovum, says that if a device is still new, a big discount is typically a sign that its sales didn’t start off strong and the company is trying to clear out inventory.

“In the case of the Z10 it seems to have happened pretty quickly,” he said of BlackBerry’s phone, “which probably means one of two things: It’s selling poorly, or they want to clear inventory before bringing out something more appealing later this year.”
This post has been revised to reflect the following correction:

Correction: July 17, 2013
An earlier version of this post referred incorrectly to the country in which customers received a free keyboard cover when they bought a Surface tablet. It was in the United States, not Japan.

Apple Conspired To Set E-Book Prices, Judge Rules

Apple Inc. "conspired to raise the retail price of e-books," a federal judge ruled Wednesday as a civil lawsuit brought by the Justice Department reached its conclusion.

As Bloomberg News reminds its readers, "the U.S. sued Apple and five publishers in April 2012, claiming the maker of the iPad pushed publishers to sign agreements letting it sell digital copies of their books under what's known as the agency model. Under that model, publishers, and not retailers, set prices for each book, with Apple getting 30 percent."

In December 2011, news editor Sarah Weinman from Publishers Marketplace explained the Justice Department's concerns to NPR's Lynn Neary. From an "investigative body's standpoint," she noted, "just the very idea that there could be this uniform price might send up some red flags."

According to The Associated Press:

"In her ruling U.S. District Judge Denise Cote said Apple knew that no publisher could risk acting alone to try to eliminate Amazon.com's $9.99 price for the most popular e-books so it 'created a mechanism and environment that enabled them to act together in a matter of weeks to eliminate all retail price competition for their e-books.' "

Cote also wrote that "the evidence is overwhelming that Apple knew of the unlawful aims of the conspiracy and joined the conspiracy with the specific intent to help it succeed."

During the trial, Apple attorney Orin Snyder said the judge would set a "dangerous precedent" if she concluded that Apple manipulated e-book prices.

The Wall Street Journal calls Wednesday's ruling "a stern rebuke" for Apple. It notes that the five publishers Apple was accused of colluding with "have all since entered into settlements with the Justice Department, as well as in a separate lawsuit by a group of state attorneys general. But Apple refused to settle and decided to go to trial."

Apple, the Journal adds, "argued at trial that it engaged in hard-fought negotiations with the publishers and denied that it engaged in any collusion."

Judge Cote has not yet assessed damages.

Update at 10:40 a.m. ET. The Ruling:

We've put a copy of the judge's ruling here, and in the box below. Click on the title to pop up a larger view.

Update at 10:20 a.m. ET. "Victory For Millions Of Consumers," Justice Says; Apple Plans To Appeal:

"This result is a victory for millions of consumers who choose to read books electronically," Assistant Attorney Gen. Bill Baer writes in a statement e-mailed to reporters. "After carefully weighing the evidence, the court agreed with the Justice Department and 33 state attorneys general that executives at the highest levels of Apple orchestrated a conspiracy with five major publishers — Hachette, HarperCollins, Macmillan, Penguin and Simon & Schuster — to raise e-book prices. Through today's court decision and previous settlements with five major publishers, consumers are again benefiting from retail price competition and paying less for their e-books."

Meanwhile, Apple spokesman Tom Neumayr says:

"We did not conspire to fix e-book pricing and we will continue to fight against these false accusations. ... We've done nothing wrong and we will appeal the judge's decision."

Judge rules Apple colluded with publishers to fix ebook prices

Turns out it doesn’t hurt any less when the book the judge throws at you is an ebook.

U.S. District Judge Denise Cote on Wednesday handed down her ruling in the case between the Department of Justice and Apple over ebook price-fixing, saying that Apple conspired with the five major publishers to raise rates. A trial on damages will be held to decide how much relief the U.S. government and a coalition of U.S. states are entitled to.

The five major publishers—Hachette, Macmillan, HarperCollins, Simon & Schuster, and Penguin (which has since merged with Random House)—all chose to settle the case with the government and states before the trial kicked off last month; as part of the settlement, they are now required to submit for approval any ventures undertaken in collaboration with other publishers. Apple was the only defendant to go to trial, but the company maintained that it had done nothing wrong.

“We’re not going to sign something that says we did something that we didn’t do, so we’re going to fight,” said CEO Tim Cook during an interview at the D11 conference in May.

The trial itself had its ups and downs, with testimony coming from Apple executives like Eddy Cue, publishers like Penguin CEO David Shanks, and even Amazon personnel like Russell Grandinetti, the retailer’s vice president of Kindle content.

However, the ruling was itself presaged by comments made by Cote before the trial began, in which she said she believed “that the government will be able to show at trial direct evidence that Apple knowingly participated in and facilitated a conspiracy to raise prices of ebooks.”

Still unclear, of course, are the long-term ramifications of the decision. Most likely to benefit is Amazon, who was alleged to be the target of the collusion between Apple and publishers. But some reports suggest that Amazon has already started to raise prices.

Apple, for its part, won’t take the judgment lying down. “Apple did not conspire to fix ebook pricing and we will continue to fight against these false accusations,” Apple spokesman Tom Neumayr told Macworld. “When we introduced the iBookstore in 2010, we gave customers more choice, injecting much needed innovation and competition into the market, breaking Amazon’s monopolistic grip on the publishing industry. We’ve done nothing wrong and we will appeal the judge’s decision.”

Prepare for a slowdown in housing prices

FORTUNE – For many months now, U.S. home prices have risen to new highs as the housing market recovers from one of the worst crashes in recent history. The rebound comes as more Americans find jobs and as homebuyers work their way through the remaining housing inventory following years of lackluster construction.

Just before mortgage rates began their swift march upward, prices in 20 U.S. cities climbed 12% in April from a year earlier -- the biggest gain since early 2006 when home values began to level off before the market collapsed, according to Standard & Poor's Case-Shiller home price index released Tuesday. Some of the hardest-hit markets during the recession saw the biggest one-year jump, with prices in Atlanta, Detroit, and Las Vegas each rising about 20%. In Los Angeles, prices rose 19%, while prices in Boston, Chicago, and Denver increased almost 10%.

While we can breathe a sigh of relief at the double-digit increases, it likely won't last. The rise in home prices is expected to slow later this year or next.

Don't fret, though! This doesn't signal the recovery has stalled; it's actually a positive sign that the market is returning to normal.

MORE: Why I'm betting on a return to normal markets

In the recovery's next phase, home prices nationwide will rise by 4% in 2014, according to Paul Diggle, property economist at Capital Economics. The firm's outlook is lower than the consensus of 5.5%.

The slowdown is a positive sign because if prices were to continue rising the way they have at 12% annually, homes would be overvalued relative to rents within the next few months and relative to incomes by early 2015, Diggle writes to clients.

Part of what was driving prices higher was demand from large investors, who bought foreclosed properties in bulk at deep discounts. Those properties have dwindled, however. And as prices continue to go up, investors aren't seeing as many bargains as before.

As investors fade from the recovery, sellers are making a comeback.

It's an important development, as many homeowners with mortgages worth more than the value of their homes resisted selling at a loss during the downturn. That has been changing, however. During the first three months this year, 850,000 homes returned to positive equity, according to CoreLogic. That means 19.7%, or 9.7 million, of all residential properties with mortgages were still underwater, down from 21.7%, or 10.5 million, the previous quarter.

MORE: Fed's Bernanke talk tab: $151 billion and counting

With home prices rising and fewer borrowers underwater, many more homeowners think it's a good time to sell, according to a May survey by mortgage finance company Fannie Mae. The share of respondents who say now is a good time to sell a home reached a record high of 40%, compared with 30% in April and 16% a year earlier.

The inventory of homes for sale bottomed in January and rose by 128,0000 homes, or 6.1%, since then, Diggle notes.

So if over the next several months prices aren't rising as rapidly, know that the recovery is still strong; it has just entered another chapter.

View the original article here

Gold prices slide to 34-month low

The August contract for gold fell more than 4% to $1,227.10 an ounce early Wednesday, taking the price down to the lowest level since August 2010. Prices had been nearly $1,600 at the start of the quarter and had topped $1,900 for the first time last August.

If the sell-off continues, the second quarter will go down as one of the worst in decades.

Fears that the Federal Reserve will pull back on stimulus has been particularly bad for gold, which had been driven higher by worries that the Fed's stimulus efforts would weaken the dollar and cause inflation.

Related: Is gold losing its safe haven appeal

"It has been a turbulent past few weeks for the yellow metal and there seems little to suggest any let-up in the months ahead," said Ishaq Siddiqi, market strategist with ETX Capital, in a note to clients. "We could see gold prices test the $1,000 mark in the run-up to Fed tapering of stimulus."

The selling spilled over to gold miners. Randgold Resources (GOLD) and Barrick Gold (ABX) were both down more than 4%, and the SPDR Gold Shares Trust (GLD) ETF slid nearly 4%.

Gold wasn't the only precious metal taking a hit. Silver prices tumbled more than 5%.

Twitter: @sajilpl

Starbucks hikes prices

Starbucks is raising the price of its smaller drinks about a dime as of Tuesday.

Prices are going up by an average of 1% on brewed coffee, tea, latte and espresso drinks, spokesman Jim Olson told CNNMoney last week. While drink prices vary from city to city, Olson said the hike will boost the price of a tall brewed coffee by about a dime.

Less than one-third of all Starbucks (SBUX, Fortune 500) beverages will be affected by the new prices, he added.

Related: Starbucks starts paying U.K. tax

For instance, prices will not increase for its larger venti and grande-sized brewed coffees, or for its Frappuccino drinks.



Olson said this is the first price increase in nearly two years for the coffee chain, blaming the rising cost of labor, raw materials and rent for the hike.

 

Home prices jump 12%, new home sales hit a five year high

Increases in home prices have been accelerating steadily over the last year.

But a recent increase in mortgage rates could soon put the brakes on housing.

The S&P/Case-Shiller home price index was up 12.1% in April, compared to a year ago, in the 20 top real estate markets across the nation. That was the biggest annual jump in prices in seven years. Prices climbed 2.5% from March, posting the biggest one-month rise in the 12-year history of the index.

New homes sold at an annual pace of 476,000 in May, according to a separate government report. That's the best reading since July 2008, just before the global financial meltdown slashed homebuyers' access to credit. The pace of sales was up 2.1% from April, and up 29% from a year ago.

Related: Surging home sales, prices raise new housing bubble fears

The median price of a new home sold in May was $263,900, down 3.1% from April, but those month-over-month comparisons are often volatile. Even with the monthly decline, new home prices were up 10.3% from a year earlier

A drop in foreclosures, coupled with a tight supply of homes for sale and mortgage rates that hit record lows, have fueled the rebound in housing over the last 11 months.



But the 30-year mortgage rate has risen to nearly 4%, up from 3.35% at the start of May. While that is still low by historical standards, it's trimmed about $12,000 off of an average buyer's purchasing power. Mortgage rates began to climb in May, after April's sharp jump in home prices was recorded.

"Home value appreciation in some of these areas will have to slow down, or potentially fall, as higher prices are no longer masked by rock-bottom mortgage rates," said Stan Humphries, chief economist of home price tracker Zillow.

Indeed, the rapid rise in home prices that's fueling the housing recovery could actually help derail it, as it makes purchases more difficult for potential buyers. Even the National Association of Realtors warned last week that "home price growth is too fast," and said that the market needs significantly more home building and better access to credit for buyers.

Related: Is a neighbor hurting your home's value?

"In general, the national housing recovery is strong and sustainable, but pockets of volatility will emerge," said Humphries. "Buyers expecting home values to continue rising at this pace indefinitely may be in for a shock."

Still, higher costs for home buyers shouldn't derail the recent recovery, according to Joseph LaVorngna, chief U.S. economist at Deutsche Bank.

"Affordability remains near historic highs, despite the recent rise in rates and home prices," he said. And while banks might be charging higher rates, they are likely to ease lending standards for mortgages due to the stronger prices. That should make it easier for some buyers to qualify for home loans.

 

US home prices see big annual rise

San Francisco, home of the Giants baseball team, has seen home prices rocket 20% over the year US home prices have seen their biggest annual rise since 2006, a closely-watched survey suggests.

The Standard & Poor's/Case Shiller index, which monitors single-family home prices across 20 cities, rose 12.1% in April compared to the same month last year.

The jump, due to increasing demand and a shortage of supply, was bigger than many analysts had been expecting.

Month-on-month, the index rose 2.5% in April compared to March.

All cities except Detroit experienced year-on-year price rises, with 12 posting double-digit gains.

San Francisco saw home prices rise more than 20% over the year.

"The recovery is definitely broad-based," said David Blitzer, chairman of the index committee.
Tailspin
Last week, Ben Bernanke, Federal Reserve chairman, suggested that the central bank would begin scaling back its $85bn-a-month bond buying programme, sending global stock markets into a tailspin.

The news raised fears that mortgage rates would rise as a result and dampen the recovery in the housing market.

"Last week's comments from the Fed and the resulting sharp increase in Treasury yields sparked fears that rising mortgage rates will damage the housing rebound", said Mr Blitzer.

But he argued that, as some banks were easing credit restrictions, this should counteract any slowdown effect that higher mortgage rates might have.

"Given this, the recovery should continue", he said.
Expectations
In other economic news, orders for durable goods rose 3.6% in May, the same rise as in April and above expectations.

The positive data helped check Wall Street's recent rout, with the Dow Jones Industrial Average rising 101 points, or 0.7%, to close at 14,760, nearly reversing Monday's 139 point drop.

The S&P 500 was up 15 points, or 1%, at 1,588, while the Nasdaq rose 27 points, or 0.8% to 3,348.

The news also saw the US dollar strengthen slightly against the euro, gaining 0.3%.