Home prices continue to confound predictions
of decelerating gains. The S&P/Case-Shiller National Home Price Index
gained 5.2 percent over the 12 months period ended in October - up from the 4.9
percent gain reported for year-over-year for September. The Index, which covers
all nine U.S. census divisions, was up 0.1 percent from September to October
Case-Shiller's 10-City Composite Index
increased on a year-over-year basis by 5.2 percent compared to a 12-month gain
in September of 4.9 percent. The 20-City
also accelerated from the previous month with an annual gain of 5.5 percent
versus 5.4 percent in September.
Twelve of the 20 cities covered by Case-Shiller
had greater annual price gains in October than in September. San Francisco, Denver, and Portland (Oregon)
continue to report the highest gains and again those gains were in double
digits - 10.9 percent for all three.
Phoenix has the longest streak, its 5.7 percent increase in October was
the 11th consecutive gain.
The National Index posted a gain of 0.1
percent from September to October on a non-seasonally adjusted basis and was up
0.9 percent adjusted. The 10-City was
unchanged and the 20-City ticked up 0.1 percent unadjusted. Both city composites increased 0.8 percent
adjusted. All 20 cities reported gains
after seasonal adjustment but only half did so before it.
David M. Blitzer, Managing Director and
Chair of the Index Committee said "Generally good economic conditions continue to
support gains in home prices. Among the positive
factors are consumers' expectations of low inflation and further economic
growth as well as recent increases in residential construction including single
family housing starts. Inventories of existing homes have averaged around a
five month supply for the past year, a level that suggests a fairly tight market
with limited supplies. Sales of new single family homes, despite recent increases
in construction, remain mixed to soft compared to the trend in existing home sales.
"The recent action by the Federal Reserve raising
the Fed funds target rate by 25bp and spreading expectations of further increases
during 2016 are leading some to wonder if mortgage interest rates might rise"
Blitzer said. "Typically, increases in short term interest rates lead to smaller
increases in long term interest rates. The chart below shows the average rate on
30-year fixed rate mortgages and the Fed funds rate. From May 2004 to July 2007,
the Fed funds rate moved up from 1.0 percent to 5.25 percent; over the same period,
the mortgage rate rose from about 6 percent to 6.75 percent during a sustained tightening
effort by the Federal Reserve. The latest economic projections published by the
Fed following the recent rate increase suggest that the Fed funds rate will be around
2.6 percent in September 2017 compared to a current rate of about 0.5 percent. These
data suggest that potential home buyers need not fear runaway mortgage interest
As of October the average home prices of
cities in the two composite indices are back to levels in the winter of
2007. Measured from the June/July 2006
peaks the composites are down by approximately 11 to 13 percent. Since hitting their post-crash lows in March
2012 the 10-City has recovered by 34.9 percent and the 20-City by 36.4 percent.
The S&P/Case-Shiller Home Price
Indices are constructed to accurately track the price path of typical
single-family home pairs for thousands of individual houses from the available
universe of arms-length sales data. The S&P/Case-Shiller National U.S. Home
Price Index tracks the value of single-family housing within the United States.
The indices have a base value of 100 in January 2000; thus, for example, a
current index value of 150 translates to a 50% appreciation rate since January
2000 for a typical home located within the subject market.
The 10-City Composite currently has an
index level of 197.62 and the 20-City a value of 182.83. The National Index is at 175.65. Detroit is the city with the lowest index at
103.39 and Los Angeles has the highest at 238.96.