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Is Home Price Appreciation Developing a New Trend?

Single-family home prices have been steadily appreciating since bottoming out a little more than four years ago—in fact, June 2016 marked the 50th consecutive month of year-over-year home price appreciation, according to the S&P CoreLogic Case-Shiller Indices for June released Tuesday.

The indices also offered a sign that price appreciation may be slowing. June marked the fifth consecutive month that year-over-year price appreciation was either flat or slower compared with the previous month. June’s national rate of appreciation was 5.1 percent, unchanged from May; the 10-city composite index posted an over-the-year increase of 4.3 percent in June, down from 4.4 percent in May; and the 20-city composite index reported a year-over-year increase of 5.1 percent in June, down from 5.3 percent in May.

“Though this is a sign that the U.S. housing market continues to stabilize, homebuyers are still being challenged as prices outpace income growth yet again,” Trulia Chief Economist Ralph McLaughlin said.

The Pacific Northwest experienced the strongest year-over-year price appreciation in June with more than 10 percent. Among the 20-city composite index, the three cities with the highest year-over-year price gains were Portland (12.6 percent), Seattle (11 percent), and Denver (9.2 percent). Even with the slower national appreciation, six out of the 20 cities reported greater year-over-year price appreciation in June than in May.

“Prices in last month's three hot markets (Portland, Seattle, and Denver) continue to lead the pack with increases between 9.2 percent to 12.6 percent,” McLaughlin said.  “Though Western markets dominate U.S. price growth, San Francisco continues to show a noticeable cooldown. Home prices in the City by the Bay increased of 6.4 percent, which is the smallest annual gain since August 2012. The continued slowdown suggests the San Francisco housing market might start looking more 'normal' by the end of the year, but the market still has a long way to go before most Bay Area homebuyers would agree.”

David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices, said that recent price appreciation combined with other recent housing metrics mean good news for the housing market.

“Overall, residential real estate and housing is in good shape,” Blitzer said. “Sales of existing homes are at running at about 5.5 million units annually with inventory levels under five months, indicating a fairly tight market. Sales of new single family homes were at a 654,000 seasonally adjusted annual rate in July, the highest rate since November 2007. Housing starts in July topped an annual rate of 1.2 million units. While the real estate sector and consumer spending are contributing to economic growth, business capital spending continues to show weakness.”

The S&P CoreLogic Case-Shiller Indices were not the only measure of house prices that reported slower year-over-year gains. Earlier in August, the FHFA’s Q2 Home Price Index, which calculates the HPI using home sales price information from mortgages sold to or guaranteed by Fannie Mae and Freddie Mac, increased by 1.2 percent over-the-quarter and 5.6 percent over-the-year; however, it increased by just 2 percent from May to June.

“Although the appreciation rate for the second quarter was of similar magnitude to what we’ve been seeing for several years now, a close look at the month-over-month price changes during the quarter reveals a potentially significant market shift,” said FHFA Supervisory Economist Andrew Leventis. “Our monthly price index indicates that in each of the three months of the quarter, the increase was only 0.2 percent. This is a much more modest pace of appreciation than we’ve seen in some time and most likely reflects accumulated pressures from significantly reduced home affordability.”

The Case-Shiller National Home Price Index came with a caveat, according to McLaughlin.

“While the S&P Case-Shiller National Home Price Index is an important metric to watch, it’s worth noting that the measure is more reflective of price movements in premium homes rather than middle or lower-tier homes,” McLaughlin said.

Click here to view the full S&P CoreLogic Case-Shiller Indices report for June 2016.

About Author: Seth Welborn

Seth Welborn is a Harding University graduate with a degree in English and a minor in writing. He is a contributing writer for MReport. An East Texas Native, he has studied abroad in Athens, Greece and works part-time as a photographer.
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