Housing Market Category
December home prices continued to rise per December readings for Case-Shiller’s National and 20-City Home Price Indices. On average, national home prices increased by 5,80 percent year-over-year and exceeded November’s year-over-year reading of 5.60 percent. The 20 City Index, which analysts follow more closely than the National Home Price Index, posted a year-over-year gain of 5.60 percent in December, which exceeded an expected reading of 5.40 percent and November’s year-over-year reading of 5.20 percent growth.
West Posts Highest Home Price Growth
The West continued to dominate home price growth rates with Seattle, Washington posting 10.80 percent year-over-year growth while Portland, Oregon and Denver, Colorado posted year-over-year gains of 10.00 percent and 8.90 percent respectively. New York, New York posted the lowest year-over-year gain in home prices with year-over-year growth of 3.10 percent. Washington, D.C. followed with 4.20 percent growth in home prices; Cleveland, Ohio posted a year-over-year gain of 4.40 percent.
Home Price Growth Rate Doesn’t Indicate a New Housing Bubble
David M. Blitzer, Chairman and Managing Director of the S&P Indices Committee that oversees Case-Shiller Home Price Indices, said that home prices adjusted for inflation averaged a year-over-year growth rate of 3.80 percent. While higher than average, Mr. Blitzer said the current rate of home price growth “is not alarming.”
While rising home prices may sideline moderate-income and first-time homebuyers, high demand for homes and ongoing shortages of homes for sale continued to drive prices up. Real estate pros typically consider a six-month supply of available homes an average inventory reading, but the current supply of homes for sale averages three to four months. Recently rising mortgage rates were also cited as contributing to higher home prices; rates for a 30-year fixed rate mortgage average 4.20 percent as compared to 6.40 percent on average since 1990.
Questions of affordability and rising rates could impact first-time buyers who enable current homeowners to sell their homes and “move up.” If large numbers of first-time buyers are sidelined by rising home values and mortgage rates, home prices could be impacted if investors and cash buyers fail to fill in gaps between high home prices and affordability.
September’s 20-City Housing Market Index from Case-Shiller showed signs that rapidly rising home prices in some metro areas may be losing momentum. San Francisco, California, posted a month-to-month reading of -0.40 percent and a year-over-year reading of 5.70 percent. Home prices stayed flat in Seattle Washington from August to September, but posted the highest home price gain of 11.00 percent year-over-year. Slowing home price growth in high-demand areas suggest that affordability concerns are impacting rapid gains in home prices seen in recent years.
Case-Shiller’s National Home Price Index achieved its highest gain with a reading of 5.50 percent as compared to August’s reading of 5.10 percent.
Year–over–Year: Western U.S. Holds Highest Gains in Home Prices
In addition to Seattle’s year-over-year home price growth rate of 11 percent, Portland, Oregon closely followed with a year-over-year reading of 10.90 percent. Denver, Colorado rounded out the top three cities in the 20-City Home Price Index with a year-over-year growth rate of 8.70 percent. September was the eighth consecutive month that the top three cities held their places in the 20-City Index. Case-Shiller’s 20-City Home Price Index posted a year-over- year gain of 5.10 percent.
September Home Prices Cap Recovery, Usher in New Progress for Housing Market
According to David M. Blitzer, Chairman of S&P Dow Jones Index Committee, September’s record national reading for home prices marks a transition from housing recovery to “the hoped for start of a new advance.” Mr. Blitzer cited recent data on sales of new and pre-owned homes and said that housing starts reached a post-recession peak.
September’s peak in national home prices was 0.10 percent above the pre-recession peak set in 2006. Adjusted for inflation, the September peak remains approximately 16 percent below the pre-recession peak. During the recession, national home prices reached a trough that was 27 percent lower than Case-Shiller’s September reading. Analysts expressed some caution and noted headwinds to housing markets including slower-than-normal rates of homes construction, higher mortgage rates and strict mortgage approval requirements.
According to the National Association of Home Builders Housing Market Index for November, builder sentiment was unchanged at a reading of 63. Readings above 50 indicate that a majority of builders are confident about housing market conditions. Readings for three sub-indexes used to calculate the Housing Market Index Readings for builder confidence in current market conditions and market conditions within the next six months were posted at 69. The reading for buyer foot traffic in housing developments was 47. Buyer traffic has not reached the benchmark reading of 50 since the peak of the housing bubble approximately 10 years ago.
NAHB Chair Ed Brady noted that survey information provided by most participating builders was gathered prior to the presidential election. Mr. Brady also noted that Housing Market Index readings have exceeded 60 for the past three months, which indicates slow but steady growth in housing markets.
Analysts: Builder Sentiment and Building Activity Inconsistent
While positive builder sentiment readings seem to contribute to stronger housing markets, analysts pointed out that housing starts are not consistent with high builder sentiment levels. Reasons for fewer home starts than the Housing Market Index suggests include approaching winter weather and ongoing shortages of labor and buildable lots.
Real estate pros count on building more homes (and building them faster) as the only solution to tight supplies of available homes and rising demand. These conditions create highly competitive markets that present obstacles to moderate income and first time home buyers. NAHB said that rising incomes, expanding labor markets and relatively low mortgage rates are fueling demand for homes. While mortgage rates have remained near historic lows, home prices have risen quickly in high-demand areas. This creates affordability challenges for home buyers, who also face strict home loan approval requirements.
3 Month Rolling Averages Show Regional Confidence Readings
NAHB reported its three-month rolling averages according to four regions included in Housing Market Index readings. The Northeast reading was 45; the Midwest region’s confidence reading was 58 and the Southern region reported a reading of 66. The West, which includes high-demand metro areas such as Portland, Oregon and San Francisco, California, had a November builder confidence reading of 77.
According to the National Association of Home Builders, overall builder confidence in housing markets dropped two points in October to an index reading of 63. September’s reading of 65 was the highest posted since the housing bubble peak. Component readings for October’s housing market index were mixed; the reading for builder confidence in market conditions over the next six months rose one point to 72. Builder confidence in current housing market conditions fell two points to 69. Builder outlook for buyer traffic in new home developments over the next six months fell by one point to an index reading of 46.
Approaching winter weather likely contributed to lower readings, but builder confidence remained strong. Any reading above 50 signifies that more builders are confident about specific index components than fewer. While home builders continue to be encouraged by low mortgage rates and a stronger job market, they also face obstacles including shortages of labor and buildable lots for development.
High Demand, Low Inventory of Homes Present Ongoing Challenges
High demand for homes coupled with depleted inventory of available homes is sidelining some buyers. As demand continues to drive home prices higher first-time and moderate income buyers are faced with affordability and mortgage qualification challenges. Limited inventory also makes it difficult for home buyers to find homes they want and contributes to competition for available homes. Buyers depending on mortgage financing typically compete with investors and cash buyers for homes in high demand areas.
Real estate pros and analysts monitor home builder sentiment as an indicator of future home supplies, but builder sentiment and housing starts don’t necessarily correspond. Given high home prices and strict mortgage qualification standards that sideline some buyers, it appears that home builders are taking a moderate stance toward ramping up construction.
In addition to boosting real estate markets, building homes provides jobs and supports local economies. Building homes creates demand for construction materials and related products and services.
The National Association of Home Builders reported that home builder confidence in the U.S. housing market conditions held steady for the fourth consecutive month in May. Builder confidence stayed at a reading of 58, which was the number expected by analysts and was also the reading for April. Analysts said that the consistency in readings signified expansion in housing markets. Any reading over 50 indicates that more builders than not are confident about market conditions.
Components of the NAHB Housing Market Index include readings on builder confidence in current market conditions which held steady at 63 and builder confidence in market conditions over the next six months, which gained three points to a reading of 54. Builder confidence in foot traffic for new home developments was unchanged at a reading of 44.
NAHB Chief Economist Robert Dietz said that the higher reading for future sales indicates growing builder confidence in housing market conditions. In recent months, housing markets have been fueled by low mortgage rates and high demand, but supplies of available homes are dwindling. Housing industry analysts have identified building new homes as a major solution for the shortage of homes for sale.
Analysts note that while new homes represent a small part of the residential real estate market, each new home constructed contributes an average of three jobs for a year and yields an average of $90,000 in tax revenue for each home built. Builders repeatedly cite a lack of workers and buildable lots as a concern for building more homes. An NAHB analysis of the Bureau of Labor Statistics’ report on Job Openings and Labor Turnover indicated that there were 210,000 unfilled construction jobs in March, which was the highest reading since May 2007.
Regional surveys of home builder sentiment were mixed. The reading for the Northeast fell by 3 points to 41 while readings for the Midwest and South rose by one point each with readings of 58 and 59 respectively. The reading for the West was unchanged at 67.
Low Mortgage Rates: Will the Fed Raise Rates in June?
In other housing related news, analysts’ predictions are mixed regarding whether or not the Federal Reserve will raise its target funds rate next month when the Federal Open Market Committee (FOMC) meets. Uncertainties over the United Kingdom’s upcoming vote about leaving the European Union and mixed economic data appear likely to nix a rate increase, but improving labor markets could be a plus for a fed rate increase. Raising the federal funds rate would cause mortgage rates to rise and is considered a further concern for the gap between growing wages and rapidly rising home prices.
Case-Shiller Home Price Index reports for November indicate that home price growth continues to slow. The 20-City Home Price Index dropped by 0.20 percent to November’s reading of 4.30 percent year-over-year.
The five cities with highest year-over-year home price growth rates in November were:
San Francisco, California 8.90%
Miami, Florida 8.60%
Las Vegas, Nevada and Dallas, Texas 7.70%
Denver, Colorado 7.50%
The five cities with the lowest year-over-year growth in home prices were:
Cleveland, Ohio 0.60%
Washington, DC 1.90%
New York, New York and Minneapolis, Minnesota 1.50%
Chicago, Illinois 2.00%
There were no instances of year-over-year depreciation in home prices for the year-over-year readings, but month-to-month readings indicated that slower momentum in year-over-year home prices is producing negative home price readings on a month-to-month basis. First the good news; although no city included in the 20-City Home Price Index had month-to-month home prices increases of one percent or more, there were some gains.
Month-to-Month Home Price Readings Mixed
According to the Case-Shiller 20-City Home Price Index for November, 12 cities posted month-to-month gains for home prices and eight cities saw home prices decline from October to November.
The five cities with the highest month to month home price growth in November were:
Tampa, Florida 0.80%
Miami, Florida 0.60%
Las Vegas Nevada 0.50%
Los Angeles and San Diego, California 0.50%
San Francisco, which led year-over-year home price growth rates for November, posted a month-to-month gain of 0.10 percent.
The five cities with the highest declines in month-to-month home price growth were:
Chicago, Illinois -1.10%
Detroit, Michigan -0.90%
New York, New York -0.80%
Minneapolis, Minnesota -0.70%
Washington, DC -0.50%
In spite of gloomy month-to-month readings for November home prices for cities included in the Case-Shiller 20-City Home Price report, overall signs of economic growth persist. In separate reports released Tuesday, The Department of Commerce reported that December sales of new homes rose by 11.60 percent year-over-year.
481,000 newly constructed homes were sold in December as compared to expectations of 455,000 new homes sold and November’s reading of 431,000 sales of new homes in November.
Home Sales Should Continue to Increase with Warmer Weather
As warmer weather approaches, it’s likely that overall home sales will continue to increase. Stronger job markets, low mortgage rates and the possibility of relaxing mortgage standards likely contributed to a jump in consumer confidence for January.
Consumer confidence increased from December’s index reading of 93.10 to 102.90, which was the highest reading since August 2007. Analysts had forecasted an index reading of 96.90 for January. Expectations of wage growth, which has been largely flat post-recession, were seen a significant contribution to January’s boost in consumer confidence.
Home Builder Sentiment slipped to a reading of 57 in December according to the National Association of Home Builders Housing Market Index. November’s reading of 58 prompted analysts to project a reading of 59 for December. The latest reading marks the sixth consecutive month for readings above 50. Any reading over 50 indicates that more builders are positive about housing market conditions than not.
The one-point decline in December’s reading kept the NAHB Housing Market Index within two points of a nine-year high reached in September.
NAHB: Housing Market Index Suggests Slow Return to Normalcy
NAHB’s chief economist, David Crowe, said that December’s reading was in line with NAHB’s assessment that housing markets are on a “slow march back to normal.” Home builder confidence in conditions contributing to the NAHB Housing Market Index also fell in two categories while remaining unchanged in one.
The gauge of builder confidence in current market conditions moved from last month’s reading of 62 to 61. Builder confidence in upcoming home sales fell from 65 to 64, while confidence in prospective buyer traffic was unchanged at a reading of 45. These results are consistent with real estate market trends slowing during the holiday season and winter months.
Builders Challenged in 2014, Better Conditions Expected in 2015
Analysts said that steady builder confidence may be a result of builders surviving a tough year in 2015. Market conditions, unpredictable interest rates and higher costs of supplies along with high unemployment subdued builder confidence during 2014. The New Year brings prospects of easing mortgage standards and better labor markets, which are expected to boost builder confidence as more home buyers enter the market for new homes.
The Commerce Department is set to release Housing Starts for November on December 16; analysts expect an increase to 1.035 million starts on a seasonally adjusted annual basis as compared to October’s reading of 1.01 million starts. A positive reading for housing starts could further bolster home builder confidence for future readings.