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Capital Economics: Home price growth is holding steady

Report projects 3% home price growth through end of year

In August, Capital Economics predicted an increase in home prices due to low mortgage rates. The August report predicted a 3% increase in home price growth.

And now, the economic research consultancy is doubling down on that rate projection, despite other indicators pointing to an acceleration.

Capital Economics’ report this week cited plenty of data that could lead to a projected acceleration in home price growth of around 5% by the end of 2019.

“Some leading indicators of house price growth are pointing to an acceleration,” the report states. “For example, the average size of mortgages approved for home purchase was up 6% year over year in September. That’s the fastest pace since the end of 2015, and points to house price growth rising to 5% over the next six months.”

But Capital Economics warns using those figures as an indicator could be misleading. The report states that a rise in mortgage approval size could mean a larger share of more expensive homes being sold, rather than a rise in average house prices. 

The report also points to low inventory as an indicator that prices could accelerate. And while that may be enough to fuel the 3% price growth Capital Economics is projecting, its economists argue that the slowing economy won’t push that percentage any higher. 

“With the economy slowing, we are not convinced house price growth will take-off,” the report states. “Buyers will become increasingly cautious about how much they are prepared to pay for a home, and lenders will curb how much they are willing to lend.”

“Indeed, homebuyer sentiment has stayed stubbornly low even as interest rates have hit a three-year trough, and house price expectations on the NY Fed measure have dropped to six-year lows,” the report concludes. “Given that, we are sticking to our view that growth will stabilize at 3% year over year this year, before slowing to no change in 2020.”

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