The Latest on Home Prices

• Recent housing price data at the national level suggests that home prices continue to increase at a strong pace—faster than what would be considered typical. Strong buyer demand and low inventories coupled with still relatively low levels of new construction are continuing to push prices up and keep housing market tipped in favor of sellers in most local markets. However, prices in some areas are creating affordability concerns that may dampen demand and slow the pace of increase in the months to come.
• The pace of home price growth still has a substantial way to go before it moves back to a rate that is sustainable. New construction is needed to help meet the continued strong demand from buyers in an economy where jobs are being created and there is a low supply of homes for sale. Without an increase in new construction, affordability could cause a new housing crisis where would-be owners are held back by ever-rising rents, debt obligations such as student loans, and a lack of affordable housing supply.
•  Various data sources are flashing the same rising price signals:
  • Today, Case Shiller data showed that house prices rose roughly 5 percent in all three indices since May 2015. The national index gained 5.0 percent, while the 10-city composite rose 4.4 percent and the 20-city composite rose 5.2 percent year over year. Each area’s measured gain the same or lower than the gain reported in April.
  • Last week, the Federal Housing Finance Agency (FHFA) and the National Association of Realtors® (NAR) reported price data for April and May.
  •  NAR data showed that prices grew at a 4.3 percent pace from May 2015 to May 2016. NAR also reported on new June 2016 data which showed a slight acceleration to 5.0 percent growth from one year ago.
  • FHFA data showed that prices were up 5.6 percent in May from one year ago, slightly slower than the 5.9 percent pace seen in April, but within the 5 to 6 percent pace seen in the last 16 months.
• Potential buyers and sellers should be sure to put the national numbers in the context of what is going on in their local markets. The fastest overall growth rates in the NAR data are in the West where prices rose 7.1 and 7.2 percent from one year ago in May and June. By contrast, NAR’s median price showed a slight decline in the Northeast in May and only 1.4 percent growth in June.
• FHFA data show similar trends. The top two divisions in May were the Pacific (7.9 percent) and Mountain (8.5 percent) divisions which together make up the West Census region. [1]
• According to FHFA, New England (3.9 percent) and the Middle Atlantic (3.4 percent) divisions, which make up the Northeast region, lagged behind.[2]
• Case Shiller data show similar results. The strongest price growth was seen out West in Portland (12.5%), Seattle (10.7%), and Denver (9.5%) in the year ending May 2016. By contrast, Washington DC (2.4%), New York (2.0%), and Cleveland (2.5%) were the slowest growing markets. Data shows that sellers in these somewhat weaker areas may not have as much power to demand higher prices for their homes given the local market. How does your market compare to the national price trends?
• NAR reports the median price of all homes that have sold while Case Shiller and the Federal Housing Finance Agency report the results of a weighted repeat-sales index. Case Shiller uses public records data which has a reporting lag. To deal with the lag, Case Shiller data is based on a 3 month moving average, so reported May prices include information from repeat transactions closed in March, April, and May. For this reason, changes in the NAR median price tend to lead other indexes and suggest that continued strength in home price growth is ahead.

1)       The Pacific division includes Hawaii, Alaska, Washington, Oregon, and California, and the Mountain division includes Montana, Idaho, Wyoming, Nevada, Utah, Colorado, Arizona, and New Mexico.

2)        The New England division includes Maine, New Hampshire, Vermont, Massachusetts, Rhode Island, Connecticut, and the Middle Atlantic division includes New York, New Jersey, Pennsylvania.