Home Prices Cool for 12th Consecutive Month; Affordability Improves

Home price appreciation slowed for the 12th consecutive month in March, according to the S&P CoreLogic Case-Shiller National Home Price Index.

In a separate report, First American Financial Corp., Santa Ana, Calif., said home affordability improved for the first time since 2016 as

The S&P CoreLogic Case-Shiller National Home Price NSA Index, covering all nine U.S. census divisions, reported a 3.7% annual gain in March, down from 3.9% in the previous month. The 10-City Composite annual increase slowed to 2.3%, down from 2.5% in the previous month. The 20-City Composite posted a 2.7% year-over-year gain, down from 3.0% in the previous month.

The report said Las Vegas, Phoenix and Tampa reported highest year-over-year gains among the 20 cities measured. Las Vegas led with an 8.2% year-over-year price increase, followed by Phoenix at 6.1% and Tampa at 5.3% increase. Four of the 20 cities reported greater price increases in the year ending March from a year ago.

Month over month, before seasonal adjustment, the National Index posted an 0.6% increase in March. The 10-City and 20-City Composites both reported 0.7% increases for the month. After seasonal adjustment, the National Index posted an 0.3% month-over-month increase in March. The 10-City and 20-City Composites both posted 0.1% month-over-month increases. In March, 19 of 20 cities reported increases before seasonal adjustment, while 14 of 20 cities reported increases after seasonal adjustment.

“The patterns seen in the last year or more continue: year-over-year price gains in most cities are consistently shrinking,” said David M. Blitzer, Managing Director and Chairman of the Index Committee with S&P Dow Jones Indices. “Double-digit annual gains have vanished.”

Blitzer said the shift to smaller price increases is broad-based and not limited to one or two cities where large price increases collapsed. Other housing statistics tell a similar story. “Given the broader economic picture, housing should be doing better,” he said. “Mortgage rates are at 4% for a 30-year fixed rate loan, unemployment is close to a 50-year low, low inflation and moderate increases in real incomes would be expected to support a strong housing market. Measures of household debt service do not reveal any problems and consumer sentiment surveys are upbeat. The difficulty facing housing may be too-high price increases.”

Ralph McLaughlin, CoreLogic Deputy Chief Economist, noted home price growth is now at its lowest level since September 2012.

“U.S. housing market moderation has now lasted a year, driven by considerable slowing in the nation’s most expensive markets,” McLaughlin said. “While the slowdown is most pronounced in these areas, all of the 20-city markets are slowing, suggesting the cooldown has broken from its confines in the West.”

McLaughlin suggested, however, with the 10-year treasury falling, mortgage rates are likely to continue to decline this spring. “This should help to take the cold edge off what has otherwise been a market slow to thaw from the winter months,” he said.

The report said as of March, average home prices for the MSAs within the 10-City and 20-City Composites are back to their winter 2007 levels.

Meanwhile, First American said its March Real House Price Index showed real house prices decreased by 0.9 percent between February and March. Year over year, real house prices declined by 0.04 percent.

The report noted consumer house-buying power, how much one can buy based on changes in income and interest rates, increased by 1.5 percent between February and March and increased by 5.2 percent year over year. Average household income has increased by 3.0 percent since March 2018 and by 56.0 percent since January 2000.

First American Chief Economist Mark Fleming said real house prices are 15.0 percent less expensive than in January 2000, as market forces suggest a “swing” toward affordability.

“What began as a modest shift toward a buyers’ market in six cities last month has expanded into a national shift in affordability,” Fleming said. “The shift is a departure from the long-term trend in the Real House Price Index, which had been steadily increasing throughout the rising mortgage rate environment that began in 2017 and continued until late 2018. Rising mortgage rates caused consumer house-buying power to decline at the same time as tight supply pushed house prices up rapidly.”

Fleming said in March, two main components of the RHPI swung in favor of increased affordability–continued strong household income growth and declining mortgage rates. “Consumer house-buying power climbed to $383,700 in March, 1.5 percent higher than last month and 5.2 percent higher than one year ago, reaching the highest level since December 2017,” he said. “Mortgage rates in March fell to 4.27 percent, or 0.17 percentage points lower than one year ago. The decline in mortgage rates increased house-buying power by $7,800 since March 2018. Over the same period, household income grew by 3.0 percent, which boosted consumer house-buying power by nearly $11,000. The net effect? Overall, consumer house-buying power increased by nearly $19,000 in March compared with one year ago.”

The report said states with the greatest year-over-year increase in the RHPI are Wisconsin (4.6 percent), New Hampshire (3.9 percent), Ohio (3.7 percent), Missouri (3.0 percent) and Alaska (+3.0 percent). States with the greatest year-over-year decrease are Wyoming (-6.9 percent), West Virginia (-4.1 percent), Louisiana (-4.1 percent), Alabama (-4.0 percent) and Oklahoma (-3.7 percent).

In metro areas tracked by First American, markets with the greatest year-over-year increase in the RHPI are Columbus, Ohio (5.9 percent), Providence, R.I. (5.5 percent), Salt Lake City (5.1 percent), Atlanta (3.7 percent) and Cincinnati (3.6 percent). Markets with the greatest year-over-year decrease are San Jose, Calif. (-7.6 percent), Seattle (-6.4 percent), San Francisco (-4.4 percent), Portland, Ore. (-3.9 percent), and Los Angeles (-3.1 percent).