The June 2018 First American Real House Price Index (RHPI) – which measures price changes of single-family U.S. properties throughout and adjusts them to account for the impact of income and interest rate changes – finds that home prices continue to rise at a breakneck speed. However, there are signs that that rate of increase is slowing, and evidence that home values will slowly moderate over time with little risk of a price decline.
June 2018 Real House Price Index:
Real house prices increased 1.5 percent between April 2018 and May 2018.
Real house prices increased 11.4 percent year-over-year.
Consumer house-buying power – how much one can buy based on changes in income and interest rates – declined 1.0 percent between April 2018 and May 2018, and 3.6 percent year-over-year.
Real house prices are 36.9 percent below their housing boom peak in July 2006 and 11.0 percent below the level of prices in January 2000.
Unadjusted house prices increased by 7.3 percent in May on a year-over-year basis and are 0.8 percent above the housing boom peak in 2006.
No state had a year-over-year decrease in the RHPI in June.
“House price appreciation remains on a tear, as unadjusted home prices nationwide increased by 7.3 percent compared with a year ago and are now 1.3 percent above the housing boom peak in 2006,” says Mark Fleming, chief economist at First American. “The U.S. economy continues to perform well, as the current economic expansion reaches record levels, prompting some to ponder when it will end.”
Fleming admits that observers fear home prices will decline the way they did during the recession, but says, “The housing market today is very different from the housing market during the previous housing boom.”
In short, demand is outpacing supply. The opposite was true in the early days of the recession.
“The price appreciation experienced in the housing market during the mid-2000s was characterized by a surge in demand driven by wider access to mortgage financing. Price appreciation in today’s housing market is characterized by a shortage of supply,” says Fleming. “The low inventory combined with income and employment growth, tighter mortgage underwriting and strong economic fundamentals, fuels price appreciation that is very different than the price appreciation during the housing boom that peaked in 2006.”
Has house price appreciation reached a tipping point?
“Real estate markets tend to move in cycles, but they do not always end in a housing bust,” explains Fleming. “As rising prices and modestly rising mortgage rates undermine affordability and buyers struggle to find something to buy with so little for sale, it’s natural to see some moderation in price appreciation.”
According to Fleming, the U.S. is “already beginning to see cooling in some markets. According to our RHPI, 21 markets experienced a monthly decline in their RHPI levels in June” – the “largest number … to see declines since September 2017.
“As buyers pull back from the market and sellers adjust their price expectations, house prices will adjust, but the strong economic conditions and the shortage of supply relative to demand continue to support the housing market,” he adds. “We’re seeing the first indications that price appreciation may be slowing, but the underlying fundamental housing market conditions support a natural moderation of house prices rather than a sharp decline.”
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