To absolutely no one’s surprise, home prices increased once again in May, and even showed double-digit gains in some markets on the West Coast, and increasing at two to three times the rate of inflation across the U.S., according to the latest report from S&P Dow Jones Indices and CoreLogic.
Home prices increased 6.4% in May, the same annual increase that was seen the month before, according to the S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, which covers all nine census divisions.
The 10-City Composite posed an annual increase of 6.1% in May, down from April’s increase of 6.4%, and the 20-City Composite increased by 6.5%, down from the increase of 6.7% the previous month.
The West Coast saw the highest annual gains out of all the top 20 cities. Seattle, Las Vegas and San Francisco increased the most with annual home price gains of 13.6%, 12.6% and 10.9% respectively.
Seven of the nation’s top 20 cities reported a higher increase in the year ending in May than the year ending in April.
“Home prices continue to rack up gains two to three times greater than the inflation rate,” said David Blitzer, S&P Dow Jones Indices managing director and chairman of the Index Committee. “The year-over-year increases in the S&P CoreLogic Case-Shiller National Index have topped 5% every month since August 2016.”
“Unlike the boom-bust period surrounding the financial crisis, price gains are consistent across the 20 cities tracked in the release; currently, the range of the largest to smallest price change is 10 percentage points compared to a 20 percentage point range since 2001, and a 25 percentage point range between 2006 and 2009,” Blitzer said. “Not only are prices rising consistently, they are doing so across the country.”
On a monthly basis, before seasonal adjustment, the National Index increased 1.1% in May. The 10-City and 20-City Composites increased 0.5% and 0.7% respectively. After seasonal adjustment, the gains were more tempered at an increase of 0.4% for the National Index and increases of just 0.1% for the 10-City Composite and 0.2% for the 20-City Composite.
Overall, 19 of the top 20 cities reported an increase in May before seasonal adjustment, and 16 of the 20 cities reported increases after seasonal adjustment.
“Continuing price increases appear to be affecting other housing statistics,” Blitzer said. “Sales of existing single family homes – the market covered by the S&P CoreLogic Case-Shiller Indices – peaked last November and have declined for three months in a row. The number of pending home sales is drifting lower as is the number of existing homes for sale.”
“Sales of new homes are also down and housing starts are flattening,” he said. “Affordability – a measure based on income, mortgage rates and home prices – has gotten consistently worse over the last 18 months. All these indicators suggest that the combination of rising home prices and rising mortgage rates are beginning to affect the housing market.”
And one expert pointed out that much of this home price growth is hitting borrowers in the lower-priced homes.
“Low-tiered homes in eleven of the 16 cities covered in the Index had year-over-year double-digit growth rates, indicating a demand and supply imbalance in affordable homes,” said Tian Liu, Genworth Mortgage Insurance chief economist.
But one expert explained there is a slight chance of hope that the rapid home price growth could soon begin slowing down.
“There are some very faint, very preliminary, sometimes contradictory and maybe deceptive signals that the tide could slowly be beginning to turn,” Zillow Senior Economist Aaron Terrazas said. “Inventory is still falling, but not at the double-digit annual rates it was just a few months ago. Whether this is because inventory realistically can’t fall much farther or because increased builder activity is finally starting to make a dent is up for debate.”
“Rent growth has largely stabilized at a fairly sustainable annual growth rate, which may take some of the urgency out of the market from those tenants desperate to escape rapidly rising rents and get into the stability of a mortgage,” Tarrazas said. “Sales of existing homes have largely plateaued and don’t seem likely to break past the roughly 5.5 million annual sales pace that they’ve been stuck on for months, though that may have more to do with the fact there is simply so little available to buy.”
“Sales of new homes have been strong, but permits are weak – a sign that builders aren’t anticipating as much demand from buyers going forward, and/or that mounting cost headwinds are finally taking their toll,” he continued. “Home price growth is likely to slow somewhat going forward, but the truth is that little has changed for home buyers in the market today: Competition is fierce, prices are rising and selection is limited.”