Home prices are rising fairly dramatically, but those eye-popping increases could be unsustainable in 2017.
According to the S&P/Case-Shiller index, home prices rose 5.8 percent annualized gain in December, a pretty dramatic increase, even as mortgage interest rates rose. Housing experts say that as the cost of buying a home accelerates, you shouldn’t be seeing home prices rise – at least not over a long period.
“Rising mortgage rates should not be boosting home prices, yet home values accelerated with a 5.8 percent annual gain in December (according to the S&P/Case-Shiller home price measurement). Price gains had been a tad lower in the prior months,” said National Association of Realtors (NAR) Chief Economist Lawrence Yun.
Other data is showing that home prices are rising even faster.
First American’s Real House Price Index, which measures the price changes of single-family properties throughout the U.S. adjusted for the impact of income and interest rate changes on consumer house-buying power, shows that homes, on a real purchasing power adjusted basis, are 8.0 percent more expensive than they were a year ago.
“Rising rates and nominal home price growth are outpacing the influence of strong income growth, leading to declining affordability for first-time home buyers. However, housing remains as affordable as it was in late 2009.” said Mark Fleming, chief economist at First American. In fact, despite rising home prices, Fleming notes that real home prices on an inflation-adjusted basis, remain 10.1 percent below the prices they were at in 2000.
The real question is if rising home prices in your neighborhood are unsustainable, given local median income, will there be a housing crash sometime later in 2017?
Yun says that the continuing shortage of inventory is leading to active competition among buyers. Other housing price trends for January 2017, including NAR’s median sales price, is showing even faster gains than the S&P/Case-Shiller index.
“Such a trend of (home) price growth outpacing incomes is not healthy nor sustainable. Only an increase in inventory can soften the price pressure,” Yun said, adding “Any impediments to new home construction need to be re-examined and possibly removed soon.”
In other words, builders need to build faster in order to keep a rising home price bubble from forming.
Leave A Comment