The beginning of the year was a record-setting time for home prices. According to the latest S&P CoreLogic Case-Shiller Home Price NSA Index released Tuesday, home prices were at a 31-month high in January 2017, up 5.9 percent year-over-year. Over the month, they were up 5.7 percent.
The Home Price NSA Index, which covers all nine U.S. Census Divisions, also showed annual increases on the 10-City Composite measurement, with a 5.1 percent jump, and the 20-City Composite, which showed a 5.7 percent uptick.
The cities to see the highest home price increase annually were Seattle (11.3 percent), Portland (9.7 percent), and Denver (9.2 percent).
According to David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Down Jones Indices, the uptick in home prices shouldn’t sound off alarm bells just yet.
“Housing and home prices continue on a generally positive upward trend,” Blitzer said. “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.
But even with additional rate hikes, Mark Fleming, Chief Economist at First American Financial Corporation, said there shouldn’t be a problem.
“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 if rates reached as high as 4.75 percent, he said, housing should remain affordable for many middle-income buyers.
“Even at the higher mortgage rate, for the majority of markets a median income can purchase more than the median priced house,” Fleming said. “Why is this? The house buying power that borrowers have, even with rates below five percent, still remains historically strong. 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.”
Blitzer agreed that we shouldn’t read too much into today’s rising home prices. What can be extrapolated is that spring will see a seller’s market take hold, he said.
“It is clear that indefinite nominal price appreciation is unsustainable,” Blitzer said. “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 CoreLogic Case-Shiller Indices are released monthly. To view the full Index, visit Spice-Indices.com.