Steel Markets

Home Prices Continue to Climb in Case-Shiller Indices

June 26, 2017

Low housing inventory continues to drive up home prices for U.S. consumers. The latest S&P CoreLogic Case-Shiller U.S. National Home Price Index reported an annual gain of 5.5 percent in April, down from 5.6 percent in March. The 20-City Index increased 5.7 percent year-over-year compared to the previous month. The gains in April were slightly lower than analyst expectations, but still fueled concerns about whether the industry is experiencing a pricing bubble.

Seattle, Portland, and Dallas reported the highest year-over-year gains among the 20-City Composite, with increases of 12.9 percent, 9.3 percent and 8.4 percent, respectively. Pricing showed more stability for expensive homes, but was volatile for lower-tier homes, said S&P.

“As home prices continue rising faster than inflation, two questions are being asked: Why? And, could this be a bubble?” says David M. Blitzer Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “Since demand is exceeding supply and financing is available, there is nothing right now to keep prices from going up. The increase in real, or inflation-adjusted, home prices in the last three years shows that demand is rising. At the same time, the supply of homes for sale has barely kept pace with demand, and the inventory of new or existing homes for sale has shrunk down to only a four month supply. Adding to price pressures, mortgage rates remain close to 4 percent and affordability is not a significant issue.

“The question is not if home prices can climb without any limit; they can’t. Rather, will home price gains gently slow or will they crash and take the economy down with them?” Blitzer added. “For the moment, conditions appear favorable for avoiding a crash. Housing starts are trending higher and rising prices may encourage some homeowners to sell. Moreover, mortgage default rates are low and household debt levels are manageable. Total mortgage debt outstanding is $14.4 trillion, about $400 billion below the record set in 2008. Any increase in mortgage interest rates would dampen demand. Household finances should be able to weather a fairly large price drop.”