Back in January, I told you that the housing market of 2016 would be about home prices.
2016 housing market hinges on home prices.
A home selling season has not been anticipated so much by home sellers since 2013. It’s not that 2015 was a bad year for housing, because it wasn’t. It’s that many home owners who have been wanting to sell since 2010 (some because of being underwater) may be in position to make the long awaited move.
And indeed, national home sale prices have appreciated considerably through the year. But who would have thought that home prices would once again approach the level reached during the peak market of 2006?
The S&P CoreLogic Case-Shiller National Home Price Index (spindices.com) reported in July that the index was within 3 percent of peak, with another month of 5 percent appreciation. And surprise! This week’s release of home price data indicated that the September’s S&P CoreLogic Case-Shiller National Home Price Index exceeded the index that was recorded during the peak market that occurred July 2006! September’s year-over-year gains were due to a 5.5 percent gain to the National Index, while the 20-City composite remained unchanged at a 5.1 percent.
Of course, regional and local differences explain why actual home prices in many areas don’t seem as high as they were during the peak. Consider that Seattle, Portland, and Denver reported the highest annual home price gains with 11 percent, 10.9 percent, and 8.7 percent respectively. The Washington DC region realized a 2.7 percent increase; which is well below the top gainers, as well as below the national average. Although the housing markets in Miami, Tampa, Phoenix and Las Vegas experienced the most home price gains during the peak; current home prices in those cities “remain well below their all-time highs.”
Analysis provided in the November 29th press release states:
“The new peak set by the S&P Case-Shiller CoreLogic National Index will be seen as marking a shift from the housing recovery to the hoped-for start of a new advance” says David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “While seven of the 20 cities previously reached new post-recession peaks, those that experienced the biggest booms — Miami, Tampa, Phoenix and Las Vegas — remain well below their all-time highs. Other housing indicators are also giving positive signals: sales of existing and new homes are rising and housing starts at an annual rate of 1.3 million units are at a post-recession peak.
The Federal Housing Finance Agency (fhfa.gov) also reported continued home price gains last week. The FHFA Home Price Index (HPI) increased 6.1 percent year-over-year. The November 23rd press release reported that home prices increased in 49 states during the third quarter of 2016 compared to the same period last year. However, “Delaware and the District of Columbia were the only areas not to see price increases.”
Indications of a strengthening housing market have been reported for many months. Last year, the National Association of Realtors® (realtor.org) reported that the national median home sale price recorded for June 2015 ($236,400) surpassed the peak national median home sale price established during July 2006 ($230,400).
And if that weren’t enough, existing home sales have also been expanding. The NAR reported last week that existing home sales increased during October. The two-month consecutive increase doesn’t only outpace June’s peak, but is now the “highest annualized pace in nearly a decade.”
Existing-home sales ascended in October for the second straight month and eclipsed June’s cyclical sales peak to become the highest annualized pace in nearly a decade, according to the National Association of Realtors®. All major regions saw monthly and annual sales increases in October.
Termed an “autumn revival,” Lawrence Yun NAR chief economist, stated that “October’s strong sales gain was widespread throughout the country and can be attributed to the release of the unrealized pent-up demand that held back many would-be buyers over the summer because of tight supply…Buyers are having more success lately despite low inventory and prices that continue to swiftly rise above incomes.”
As much as we would like home prices to significantly appreciate indefinitely, market forces and economic factors will intervene. Increasing interest rates is not only consistent with a growing economy, it will likely moderate home prices.
Fed Chair Janet Yellen stated in her November 17th Congressional testimony regarding monetary policy:
At our meeting earlier this month, the Committee judged that the case for an increase in the target range had continued to strengthen and that such an increase could well become appropriate relatively soon if incoming data provide some further evidence of continued progress toward the Committee’s objectives. This judgment recognized that progress in the labor market has continued and that economic activity has picked up from the modest pace seen in the first half of this year. And inflation, while still below the Committee’s 2 percent objective, has increased somewhat since earlier this year. Furthermore, the Committee judged that near-term risks to the outlook were roughly balanced.
Yellen stated that “an increase could well become appropriate relatively soon.” Yellen referred to economic strengths as rationale, however analysis of new data should comport with the Open Market Committee’s objectives. Yellen stated that housing market strengths are favorable for an interest rate increase. Although new home construction has been “subdued,” the fundamentals of the housing market are complimentary to such a move.
Original published at https://dankrell.com/blog/2016/12/01/home-prices-surprise/
Copyright © Dan Krell
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