Home Price Boom Continues as Leveling Out Needed

    According to the S & P CoreLogic/Case-Shiller Indices, home prices saw an average gain of 6.5 percent year-over-year in March of 2018. The Indices also indicated a 0.9 percent increase in home prices month-over-month.

    David M. Blitzer, chairman and managing director of the S & P Down Jones Indices Index Committee, observes, “Looking across various national statistics on sales of new or existing homes, permits for new construction, and financing terms, two figures that stand out are rapidly rising home prices and low inventories of existing homes for sale. Months-supply, which combines inventory levels and sales, is currently at 3.8 months, lower than the levels of the 1990s before the housing boom and bust.”

    Blitzer also notes that while there is no end in sight for rising home prices, when compared to the price gains in the housing boom of the early 2000s, “things are calmer today.”

    Rising home prices, however, are not indicative of a sustainable housing market. Lawrence Yun, chief economist at the National Association of REALTORS®, comments, “The continuing run-up in home prices above the pace of income growth is simply not sustainable. From the cyclical low point in home prices six years ago, a typical home price has increased by 48 percent, while the average wage rate has grown by only 14 percent. Rising interest rates also do not help with affordability; therefore, more supply is needed to level out home prices.”

    Yun believes that adding inventory to the market will not be enough to level the playing field and increase affordability. Instead, according to Yun, “Homebuilding will be the key as to how the housing market performs in the upcoming years.”

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