The Question of Sustainability

The national housing market has been known to fluctuate over time, but since the housing bubble in the mid 2000s, the industry has paid extra special attention to the question of sustainability: will the current market trend of appreciation continue, or are we headed for another crisis?

FitchRatings' U.S. Residential Mortgage Backed Securities Sustainable Home Price Report aims to answer just that by looking at home prices in reference to unemployment rates and inflation-adjusted income rates on a quarterly basis.

What they found was that inflation-adjusted home prices on a national scale rose at a rate of 3.5 percent annually, which is in line with previous years. For the first quarter of 2017, the increase in home prices was 1.1 percent, which in its view, is sustainable, especially considering the fact unemployment is down and inflation-adjusted income is growing. This is the first time since 2013 that the Fitch Sustainable Home Price Report was in line with the weighted average national Case-Shiller HPI.

There are a few troublesome regions which FitchRatings considers in a state of overheating, namely Colorado, Oregon, Nevada, and Washington, all of which had unreasonable home price growth since last quarter’s measurement.

Miami also is an area that was home to overvalued homes in the past, but seems to be leveling out when compared to last quarter, even though houses are still estimated to be priced somewhere between 5 to 9 percent higher than they’re actually worth. Fitch attributes this cooling off to a slowing of rental growth, rising incomes, and lower unemployment. Q1 2017 was the city’s smallest home price appreciation since 2012, and only appreciated 0.1 percent in March of 2007 according to the Case-Shiller index. Further, luxury condo inventory has increased as an alternative to purchasing, helped along by a limited supply of nonluxury condos and single-family homes.