Sky-high demand and record-low supply continued to push home prices higher in December, far faster than income growth.
U.S. home prices increased 6.3 percent compared with December 2016, according to the much-watched S&P CoreLogic Case-Shiller national home prices index. That is an increase from 6.1 percent annual growth in the previous month.
The index measuring the nation’s 20 largest metropolitan markets rose 6.3 percent year over year, a slight decline from the 6.4 percent annual gain in November.
“The rise in home prices should be causing the same nervous wonder aimed at the stock market after its recent bout of volatility,” David M. Blitzer, managing director and chairman of the Index Committee at S&P Dow Jones Indices, said in a release. “Across the 20 cities covered by S&P Corelogic Case Shiller Home Price Indices, the average increase from the financial crisis low is 62 percent; over the same period, inflation was 12.4 percent. Even considering the recovery from the financial crisis, we are experiencing a boom in home prices.”
The boom is strongest in Seattle, Las Vegas and San Francisco, which reported the highest gains. Chicago, Cleveland and Washington, D.C., saw the smallest gains. None of the top 20 markets saw an annual price decline.
This index is drawn from a three-month running average of repeat-sale closings ended in December, so it represents deals made last fall. Mortgage rates began rising at the start of 2018, which could put downward pressure on home prices, although strong demand heading into the spring will be a formidable force.
“While the price increases do not suggest any weakening of demand, mortgage rates rose from 4 percent to 4.4 percent since the start of the year,” added Blitzer. “It is too early to tell if the housing recovery is slowing. If it is, some moderation in price gains could be seen later this year.”
Sales of both newly built and existing homes fell in January, although home prices were still higher. Prices usually lag sales, but, again, the historic home shortage could upend normal trends.
Click, Diana “Home prices surge 6.3% in December amid critical housing shortage” CNBC.com, CNBC 27, Feb.2018 https://www.cnbc.com/2018/02/27/home-prices-surge-amid-critical-housing-shortage.html