S&P: Home Price Indices Hit 5th Straight Record High

Standard & Poor’s, New York, reported its S&P CoreLogic Case-Shiller U.S. National Home Price Index hit a record high in January, the fifth consecutive record month.

Before seasonal adjustment, the National Index posted a month-over-month gain of 0.2% in January; the 10-City Composite posted a 0.3% increase and the 20-City Composite posted a 0.2% increase. After seasonal adjustment, the National Index recorded a 0.6% month-over-month increase, while the 10-City and 20-City Composites both recorded 0.9% month-over-month increases.

Before seasonal adjustment, 13 of 20 cities reported increases in January. After seasonal adjustment, 19 cities saw prices rise.

On a year-over-year basis, National Home Price Index recorded a 5.9% annual gain in January, up from 5.7% the previous month. The 10-City Composite posted a 5.1% annual increase, up from 4.8% in December. The 20-City Composite posted a 5.7% annual increase, up from 5.5% in December.

Seattle, Portland and Denver reported the highest year-over-year gains among the 20 cities for the 12th consecutive month, with year-over-year price increases of 11.3%, 9.7% and 9.2%, respectively. Twelve cities reported greater price increases in the year ending January versus the year ending December.

“Housing and home prices continue on a generally positive upward trend,” said David Blitzer, Managing Director and Chairman of the Index Committee with S&P Dow Jones Indices. “The recent action by the Federal Reserve raising the target for the Fed funds rate by a quarter percentage point is expected to add less than a quarter percentage point to mortgage rates in the near future. Given the market’s current strength and the economy, the small increase in interest rates isn’t expected to dampen home buying. If we see three or four additional increases this year, rising mortgage rates could become concern.”

Blitzer noted while prices vary month-to-month and across the country, the national price trend has been positive since first quarter 2012. “Tight supplies and rising prices may be deterring some people from trading up to a larger house, further aggravating supplies because fewer people are selling their homes,” he said. “The prices also hurt affordability as higher prices and mortgage rates shrink the number of households that can afford to buy at current price levels. At some point, this process will force prices to level off and decline; however we don’t appear to be there yet.”

Mark Vitner, senior economist with Wells Fargo Securities, Charlotte, N.C., noted while only the national home price index has regained its prerecession level, “the recovery has been driven by the rebound in the 20-City and 10-City indices, which both fell harder during the housing crisis and rose faster during the ensuing recovery.”

And Mark Fleming, chief economist with First American Mortgage Corp., Santa Ana, Calif., said despite the annual increases in home prices in these and other indices, housing should remain largely affordable for the near future.

“Reports have suggested, or surely will, that this fast pace of house price appreciation will make housing unaffordable and out of reach for many American households,” Fleming said. “Add to that more rate increases from the Federal Reserve Open Market Committee and the housing market will surely struggle. Not so. The 30-year, fixed-rate mortgage is currently a little over 4 percent, well below the historical long-run average of approximately 6.5 percent since 1990.

Fleming said even with the higher mortgage rate, for the majority of markets a median income can purchase more than the median priced house. “The house buying power that borrowers have, even with rates below 5 percent, still remains historically strong,” he said. “It would take a significantly higher mortgage rate to erode the real, house-buying power adjusted, price of housing, even as nominally house prices grow at their current pace.”

Fleming said the mortgage rate would need to hit 5.4 percent–1.2 percent above the current rate–before homebuyers declined to enter the market. “Rising rates are not expected to slow down demand this spring home buying season,” he said. “It is clear that indefinite nominal price appreciation is unsustainable. That lesson was learned a decade ago. Now, historically high house buying power caused by low mortgage rates and economic growth set against a low inventory of homes for sale will drive a strong sellers’ market and further rising prices this spring. And it’s not, at least yet, cause for concern.”

The S&P report said measured from their June/July 2006 peaks, peak-to-current decline for the 20-City Composite and 10-City composite is 6.6% and 8.6%, respectively. Average home prices for the MSAs within the 10-City and 20-City Composites have recovered near their winter 2007 levels.