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US Home Prices Continue To Soar - Will Homebuilders Benefit?

US Home Prices Continue To Soar - Will Homebuilders Benefit?

USA home prices rose in December at the fastest pace in 11 months as prospective buyers bid against each other for a limited supply of available property.

The aggregate index for single-family Bay Area homes is now running 5.7 percent higher on a year-over-year basis, which is down from a 10.3 percent year-over-year gain at the same time last year and an average of 7.0 percent over the past twelve months with some weakness at the top.

But if you want to look for the dark cloud in all of this I'll point out that Chicago is still tied with Phoenix for 4th from last place in terms of annual home price appreciation.

According to David Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices, 'questions about whether this is a normal housing market or if prices could be heading for a fall are natural'.

Nevertheless, Blitzer said, the pace of increases is not alarming when examined in an inflation-adjusted, historical context.

Analysts consider the index a leading measure of home prices nationwide because it measures the price of the same house over time. We expect that prices will continue creeping higher in the months ahead, barring another leg higher in mortgage interest rates. That compares with a national increase of 5.8 percent. "Only an increase in inventory can soften the price pressure". Average rates for 30-year fixed mortgages rose from roughly 3.5% around Election Day to 4.32% at the end of December, according to mortgage company Freddie Mac.




"New home sales at 555,000 in 2016 are up from recent years but remain below the average pace of 700,000 per year since 1990", he said. Looking at real or inflation-adjusted home prices based on the S&P CoreLogic Case-Shiller National Index and the Consumer Price Index, the annual increase in home prices is now 3.8 percent.

Home prices grew at the fastest rate in 2.5 years in December, shrugging off higher interest rates to cap a year of robust growth.

Before seasonal adjustment, the National Index posted a monthly gain of 0.2%, which increased to 0.7% after seasonal adjustment.

And while rising home prices can trigger concerns about inflation, Blitzer said that the speed at which they are now growing "is not alarming", citing low inventory as a factor for the rise.

"Another factor supporting rising home prices is mortgage rates", Blitzer said.

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