Evidence is mounting that the steadily strengthening housing recovery is moving beyond lower priced homes, where the lack of inventory is greatest, into mid-tier and even luxury housing, according to the first market report on July sales.

ClearCapital reported today that national median home prices in July picked up the pace of growth over both the rolling quarter and year, with Western markets leading the way, where growth is shifting to higher priced market segments.

“July home price trends continued to show promise at a time when the strength of the broader economy is in question on many fronts,” said Dr. Alex Villacorta, Director of Research and Analytics at ClearCapital. “The national housing market defied the drag of a softening economy with increasing gains of 2.0 percent over the last rolling quarter. Housing gains in the West continued to lead the nation, and more importantly, for the second month in a row, the price rebound has broken out of the low price tier segments into higher priced homes. As the pool of buyers expands, the West continues to position for the next phase of recovery.

Western price gains broke out of the lower priced segment ($140,000 and less) and into higher priced homes (sales greater than $347,000). The migration of price gains indicates the emergence of a more broad-based demand, which will ultimately be necessary for a more mature recovery.

Most price growth has come in lower tiers where inventory is tightest. Demand among first-time buyers and investors is greater and supplies have been limited by higher levels of negative equity and continued slow processing of foreclosures. (See Tight Inventories Almost Bypass Luxury Market).

Villacorta said gains in the West appear to have moved beyond the first phase of the recovery. Initially, low price tier homes led the downturn, accumulating yearly losses of 36.5 percent by March 2009. Subsequently the low tier segment was the first to shake off losses in March 2012, as investors started capitalizing on discounted deals with attractive cash flow potential. Over the last six months, low tier momentum strengthened, and as of July, prices had been bolstered by 10.0 percent growth year-over-year.

Yearly growth for the broader national market expanded to 2.2 percent in July, 0.5 percentage points higher than June. Boosting growth at the national level, the West saw home prices roll up an impressive 6.2 percent over the previous year. The South and the Northeast also contributed to national price growth, with 1.8 percent and 1.6 percent yearly gains, respectively. While the Midwest has yet to post long term growth, the slight decline of 0.1 percent improved over last month’s yearly losses of 0.6 percent.

July marked the third consecutive month of national yearly gains, with longer term price trends at the national level last seen this strong in September 2010, when the First-Time Homebuyer Tax Credit temporarily drove prices higher. Without external stimulus driving demand, this latest round of gains is particularly encouraging. Strengthening fundamentals have finally allowed prices to move beyond stability and into a seemingly sustainable growth mode, providing reason for consumers to feel more confidence in housing overall.

Overall, the top 15 metros came in strong for July on both a quarterly and yearly basis, with average returns of 7.8 percent and 8.3 percent, respectively. Five of the top 15 metros rolled up double digit growth over the last year, a solid indication of a rebound well under way in many top markets. Phoenix continued its impressive run as the leader in annual gains for four consecutive months, with the highest yearly growth of 23.8 percent.

Confidence in housing will be key to future progress, giving buyers a reason to get off the sidelines, resulting in higher demand that could feed additional gains, and creating a positive feedback loop. Certainly the alternative is still possible, where a hiccup in consumers’ outlook could stall progress, further diminishing the willingness of a homebuyer to make a purchase, Villacorta said.

“While significant risks remain at large, housing now has the potential to enter a positive feedback loop. Price increases could lead to increased confidence. This could motivate buyers, propelling the recovery in spite of the potential economic slowdown outside the housing market. Of course it’s still possible that housing could experience a pull back if contagion from other economic sectors bleeds through, but right now there appears to be a healthy level of resilience,” he said.