Homes are appreciating at a healthy pace, with November prices up 6.2 percent year-over-year, according to the S&P CoreLogic/Case-Shiller Indices.
The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index’s 10-City Composite, which is an average of 10 metros (Boston, Chicago, Denver, Las Vegas, Los Angeles, Miami, New York, San Diego, San Francisco and Washington, D.C.), rose 6.1 percent year-over-year, up from 5.9 percent in October. The 20-City Composite—which is an average of the 10 metros in the 10-City Composite, plus Atlanta, Charlotte, Cleveland, Dallas, Detroit, Minneapolis, Phoenix, Portland, Seattle and Tampa—rose 6.4 percent year-over-year, up from 6.3 percent in October. Month-over-month, the 10-City Composite and the 20-City Composite both rose, 0.3 percent and 0.2 percent, respectively.
According to S&P Chairman of the Index Committee and Managing Director David M. Blitzer, inflation is lagging prices severely. Demand, however, is only one influencer.
“Home prices continue to rise three times faster than the rate of inflation,” says Blitzer. “The S&P CoreLogic Case-Shiller National Index year-over-year increases have been 5 percent or more for 16 months; the 20-City index has climbed at this pace for 28 months. Given slow population and income growth since the financial crisis, demand is not the primary factor in rising home prices. Construction costs, as measured by national income and product accounts [Commerce Department data], recovered after the financial crisis, increasing between 2 percent and 4 percent annually, but do not explain all of the home price gains.”
Blitzer explains that because of costs, fewer homes have been manufactured, pressuring prices.
“From 2010 to the latest month of data, the construction of single-family homes slowed, with single-family home starts averaging 632,000 annually,” Blitzer says. “This is less than the annual rate during the 2007-2009 financial crisis of 698,000, which is far less than the long-term average of slightly more than one million annually from 1959 to 2000 and 1.5 million during the 2001-2006 boom years. Without more supply, home prices may continue to substantially outpace inflation.”
Source: S&P Dow Jones Indices