December home prices signal stability

According to the latest S&P CoreLogic Case-Shiller National Home Price Index, home prices rose 3.8% year over year this past December, up from 3.5% growth in November 2019.

“The U.S. housing market continued its trend of stable growth in December,” said Craig J. Lazzara, managing director and global head of index investment strategy at S&P Dow Jones Indices. “December’s results bring the National Composite Index to a 3.8% increase for calendar [year] 2019. This marks eight consecutive years of increasing housing prices.”

U.S. home prices are now 59% above the trough reached in February 2012 and 15% above their peak prior to the financial crisis, Lazzara noted.

Price gains were modest but broad-based, with increases in every metro area tracked by the S&P CoreLogic 20-City Composite Index. The 20-city index posted a 2.9% annual increase in December, up from 2.5% growth in November, while the 10-city index saw a year-over-year gain of 2.4% in December, up from 2% growth in November.

Month over month, the national index grew 0.1% from November before seasonal adjustment, while the 10-city index edged upward 0.1% and the 20-city index was flat. Taking seasonality into account, the national index rose 0.5% month over month, while the 10- and 20-city indices each saw 0.4% growth.

Lazzara noted that, among the markets in the 20-city index, 12 saw accelerating prices on a month-over-month basis in December. Although this marked a reversal of a long period of decelerating price increases, he said that it is “too soon to say whether this marks an end to the deceleration or is merely a pause in the longer-term trend.”

Looking forward, CoreLogic chief economist Frank Nothaft said that these results bode well for the market in the short term.

“The drop in mortgage rates during the past week has improved payment affordability and will bring prospective buyers into the market,” Nothaft said. “If rates stay low into the spring, we expect sales volume to be the highest in 13 years and annual home-price growth to quicken.”

Regarding accelerating prices, Zillow economist Matthew Speakman agreed, noting that the upward trajectory of home prices comes on the heels of record-low levels of for-sale inventory. The shortage, combined with a healthy U.S. economy and the aforementioned low rates, has spurred competition all over the country. Bidding wars are ramping up nationwide, and First American Financial Corp. recently predicted that, even with market conditions that are favorable to buyers, a seller’s market is likely to persist in 2020.

Speakman also cautioned that low inventory levels could present a significant headwind to sales volume if left unchecked.

“Home sales pulled back only slightly in January — less than many experts anticipated — but the retreat may set the stage for a larger step backward in volume in the coming months,” Speakman said. “Should inventory fail to bounce back in a meaningful way, home prices may accelerate to an unsustainable level, and ultimately discourage buyers (and sellers) from entering the market altogether.”


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