S&P CoreLogic Case-Shiller Home Price Index
National home prices, measured by the S&P CoreLogic Case-Shiller Home Price Index, will be released Tuesday morning. Economists forecast a 6.5% 12-month increase for the 20-city index. Data released tomorrow for February 2018 will indicate whether housing prices will continue to rise.
- US home price surge
National home prices have been rising largely uninterrupted for the past five years, and the growth shows few signs of stopping any time soon because supply is constrained. Homes have now gained back the value lost during the Great Recession and are now as high as they’ve ever been. Last month’s data reported a 6.2% annual gain for all nine US census divisions in January, down from 6.3% the previous month.
“The supply of homes available for sale isn’t adequate to keep up with this demand as inventory has fallen consistently for the past three years” said Aaron Terrazas, Senior Economist at Zillow. “Builders struggle to bring more supply and many would-be home sellers choose to stay put and not become buyers themselves in an otherwise strong seller’s market.
- West coast leads price increases
In Seattle and San Francisco, strong home price appreciation has been supported by population and economic growth. In January, Seattle led the 20-city composite with a 12.9% year-over-year price increase, followed by Las Vegas and San Francisco. These markets also have more unique supply constraints due to geographical characteristics, congested transportation infrastructure, and regulatory concerns.
S&P CoreLogic Case-Shiller 20-City Composite
- Strong home price appreciation in cities affected the most during housing crisis
Phoenix and Las Vegas were devastated by the housing market crash and started this recovery period with relatively low prices. That has allowed them to enjoy the strong home price appreciation during this period. These markets have also seen high population growth, which has contributed to higher home prices.
- Newcomers at a disadvantage
The biggest losers are first-time home buyers. The slow erosion of housing affordability can have implications, especially for younger, first-time buyers or buyers of more modest means.
Supply is low in general but much of the homes that are ready to sell are priced at the top of the market. This tendency solidifies competition for less expensive homes which pushes prices up faster and actually contributes to increasing prices.
- A lack of affordability
As national home prices continue to rise, the impact of these rising prices has been cushioned by relatively low mortgage interest rates that have fallen to historic lows and have remained at those lows.
Low mortgage rates have subsequently keep monthly payments low, making homes relatively affordable even as prices continue to rise.
Yet, since the beginning of this year, mortgage interest rates have surged, still remaining low by historic standards but combined with continued fast home value appreciation, affordability may start to erode more quickly.
“It’s good news if you own a house, it’s bad news if you don’t,” said Hugh Johnson, Chief Investment Officer at Hugh Johnson Advisors LLC. “For newcomers to the housing market it’s getting tough out there as houses are getting pricier and pricier”.