One segment of the U.S. economy is flourishing

Property owners across the U.S. have kept a watchful eye on home prices ever since the devastating real estate rout a decade ago.

It's been a long road back. The nation's home prices today are just 2.1 percent shy of their peak in 2006, a year before the housing crash. Prices in a number of larger cities around the country have now surpassed their previous highs.

That trend shows no sign of letting up, with the latest S&P CoreLogic Case-Shiller U.S. National Home Price NSA index jumping 5 percent in May, matching the gains from the previous month. On top of higher home prices, demand for housing continues to rise, with new home sales increasing 3.5 percent in June.

"We've seen relatively stable growth of over 5 percent nationally, and from the 10,000-foot view it looks like a relatively stable market," said Svenja Gudell, the chief economist at real estate site Zillow. "But if you dig deeper, you'll see side markets with very different trends. More importantly, sellers are sitting in a pretty good spot, and it's a seller's market in many parts of the country right now. But buyers are having a really hard time in this market."

Home sales are on pace to hit around 554,000 this year, according to High Frequency Economics, which would be the strongest year for sales since 2008. That's less than half the 1.3 million homes that changed hands in 2005 during the housing boom, when rampant speculation resulted in an epic bubble. But sales have steadily picked up since the bust, rising from a low of 306,000 in 2011.

Even though sellers can command more for their homes, some are choosing to stay put, rather than listing their properties and becoming buyers themselves, Gudell noted. In some cases, that's due to the market dynamics of tight inventory, especially in moderately priced or affordable housing, which has increased competition for buyers in those segments. Some buyers are experiencing longer searches for properties or dealing with multiple competing bids, she added.

The median price of new homes in the U.S. is up 6.1 percent on the year to $306,700.

"Home prices continue to appreciate across the country," said David Blitzer, managing director and chairman of the Index Committee at S&P Dow Jones Indices, in a statement. "Overall, housing is doing quite well. In addition to strong prices, sales of existing homes reached the highest monthly level since 2007 as construction of new homes showed continuing gains."

Yet while the housing sector is currently one of the main engines of U.S. economic growth, along with consumer spending, a stronger real estate market also has a downside. The gain in home values may boost homeowners, who can turn to refinancing to take out more equity to renovate or pay down higher-interest debt, but it raises the hurdles for first-time homebuyers, especially those in cities where prices have surged.

The seven cities where home prices have exceeded their previous peaks are Boston, Charlotte, Dallas, Denver, Portland. San Francisco and Seattle. Real estate prices shot up in those metro areas between 2005 and 2007, according to IHS Global Insight economist Kristin Reynolds, who noted that home prices in Atlanta and Los Angeles are at about 90 percent of their peak levels, while Las Vegas and Phoenix remain about one-third below their peak prices.

Housing affordability remains an issue for many consumers, especially among millennials who are juggling student loan repayment. If there's a bright spot for would-be first-time homebuyers, it is the extremely low mortgage rates that continue to be available. The average rate on traditional 30-year mortgages is about 3.45 percent, the lowest since 2013 and far below the rates of more than 6 percent in the immediate aftermath of the recession.

"Affordability is being partially insulated from higher home prices due to very low borrowing costs," Reynolds said in a research note. She added, "With the fundamentals remaining supportive, we anticipate moderate price appreciation to increase homeowner equity and encourage inventory expansion, contributing to continued balanced improvement in the housing market."

Even though low rates are improving affordability, the share of first-time homebuyers hasn't returned to its historic average. Roughly 32 percent of all homebuyers are making their first property purchase, according to a March survey from the National Association of Realtors. That's down from 33 percent in 2015, and represents a dip from the historic rate of about 40 percent.

At the same time, low rates and rising home values are providing a boon to current homeowners, who are refinancing their properties and spending more on remodeling their homes. Americans are projected to spend $321 billion on renovations this year, while spending on remodeling and repairs may jump by 8 percent by early 2017, according to Harvard University's Leading Indicator of Remodeling Activity. The historic average is a 4.9 percent rise, the study noted.