Gains in Home Prices Soften

Appreciation is continuing to moderate, abated by flattening home-building and home sales.

According to the latest S&P CoreLogic/Case-Shiller Indices, home prices in November rose 5.2 percent year-over-year—a dip from October, when prices were up 5.3 percent. In June, annual appreciation stood at 6.2 percent.

“A combination of cyclical and short-term factors put a damper on home-price growth in November,” says Ralph McLaughlin, deputy chief economist and executive of Research and Insights at CoreLogic. “On the cyclical side, a maturing economic expansion set a low ceiling for continued price growth, especially given recent challenges in affordability and inventory. Short-term factors included contentious midterm elections and decade-high mortgage rates in October and November.”

“Home prices are still rising, but more slowly than in recent months,” says David M. Blitzer, chairman and managing director of the Index Committee at S&P Dow Jones Indices. “The pace of price increases are being dampened by declining sales of existing homes and weaker affordability. Sales peaked in November 2017 and drifted down through 2018.”

Constrained inventory, according to Blitzer, is keeping prices from slowing substantially. For the better part of a year, existing-home sales have stumbled, creating downward pressure on prices. In November, sales slid 7 percent year-over-year, the National Association of REALTORS® (NAR) reported; in December, they fell further, slipping 10.3 percent.

“Housing market conditions are mixed while analysts’ comments express concerns that housing is weakening and could affect the broader economy,” Blitzer says. “Current low inventories of homes for sale—about a four-month supply—are supporting home prices. New-home construction trends, like sales of existing homes, peaked in late 2017 and are flat to down since then.”

The break in the clouds are mortgage rates, which, after flirting with 5 percent, have returned to roughly 4.5 percent. The Federal Reserve has indicated it is pulling the reins this year, adopting a more “patient” policy, which is expected to keep rates from rising significantly.

“With the government shutdown failing to put homebuyers at ease, we expect home-price growth to continue to moderate over the next several months; however, falling mortgage rates should help mitigate some of these effects,” McLaughlin says.

Other economic measures, including encouraging expectations for incomes, are promising, as well.

“The softening home price appreciation in the latest Case-Shiller index will continue in the upcoming months as housing inventory builds, but it is unlikely for the national median home price to actually decline given the housing shortage of moderately-priced homes and from job additions in the economy,” said Lawrence Yun, chief economist of NAR, in a statement.

“Stable 2 percent inflation, continued employment growth and rising wages are all favorable,” says Blitzer. “Measures of consumer debt and debt service do not suggest any immediate problems.”

“In 2019, home prices in many markets look to trail income growth for the first time since 2012,” Yun said. “That is a healthy development of keeping housing affordability in check.”

The complete data for the 20 markets measured by S&P:

Atlanta, Ga.
MoM: 0.3%
YoY: 6.2%

Boston, Mass.
MoM: 0.1%
YoY: 5.6%

Charlotte, N.C.
MoM: 0.2%
YoY: 5.5%

Chicago, Ill.
MoM: -0.7%
YoY: 3.1%

Cleveland, Ohio
MoM: -0.7%
YoY: 4.6%

Dallas, Texas
MoM: 0.2%
YoY: 4%

Denver, Colo.
MoM: -0.3%
YoY: 6.2%

Detroit, Mich.
MoM: -0.4%
YoY: 5.7%

Las Vegas, Nev.
MoM: 0%
YoY: 12%

Los Angeles, Calif.
MoM: -0.3%
YoY: 4.4%

Miami, Fla.
MoM: 0.3%
YoY: 5%