Home prices in the US continued to rise in December, indicating a strong housing market moving into 2018.
The S&P CoreLogic Case-Shiller National Home Price Index, which covers the entire nation, rose 6.3% in December, up from a 6.1% year-over-year increase reported in November. The 10-City Composite annual increase is recorded at 6.0%, with no change from the previous month. The 20-City Composite came in at 6.3% year-over-year gain, down from 6.4% in November.
“Overall the Case-Shiller growth rates are relatively high,” said Robert Brusca, president of FAO Economics, a consulting firm that specializes in economics and policy. “But the dynamics of housing are changing. If you look at the slowdown in new home sales, for example, the growth we have generally been seeing I expect will slow this year.”
The Case-Shiller index compares the sale prices of the same properties over time and has historically been a reliable barometer of the US housing market. Since mid 2012, the value of residential real estate in the US has been on a steady upward trajectory. Coupled with a steady economic growth in recent years plus relatively low inflation, the reported housing index underscores a healthy US economy.
S&P CoreLogic Case-Shiller National Home Price Index
Yet overall affordability has become a growing concern.The value of homes across the country have continually risen at double the pace of inflation and wages. High home prices could be an indication that the supply of homes continues to fall short to rising demand.
The strengthening patterns of home values are optimistic for existing homeowners who are seeing their properties flourish yet for individuals who may be looking to purchase their first home the climate may be getting increasingly discouraging.
“We are seeing these gains in the housing market create a barrier for new home buyers,” said Michael Englund, chief economist of Action Economics LLC. “We are selling more expensive homes than cheaper homes so the supply of cheap homes is low. The key for new home buyers is they are looking for affordable homes to buy in appropriate locations, but the biggest spikes in prices are in urban areas where the job growth is.”
As the value of residential real estate in cities across the US continues to rise, a major constraint will be if affordable homes in these urban areas disappear.
Seattle, Las Vegas, and San Francisco had the highest year-over-year gains among the 20 cities in the Case Shiller index. In November, Seattle led the way, followed by Las Vegas and San Francisco. Six cities reported greater price increases in the year ending November 2017 versus the year ending October 2017.
“Within the US there’s an uneven performance with housing and although aggregate figures look good, in reality there are hot and cold spots,” Brusca said.