Home Prices Continue to Chug Along

A month or so back we thought a slowdown in the rate of home-price appreciation was upon us. After all, data from the NAR and the Census Bureau pointed to stagnating national median home prices.

But the latest issue of the S&P/Case-Shiller Home Price Index suggests otherwise. The index showed prices in its 20-city index increased 0.9% month over month in September. For the second-consecutive month, prices increases swept all 20 cities. This latest increase lifted the year-over-year gain to an impressive 13.3%.

We'll be interested to see what Case-Shiller reports for October. Data we've seen from Zillow and CoreLogic suggest some slowing in the rate of price appreciation. Our own anecdotal experience also suggests some slowdown in more local markets. We'd like to see if empirical evidence bears this out.

Unfortunately, empirical evidence still bears out weak sales growth. The Pending Home Sales Index slipped 0.6% to a 102.1 reading in October. The index is at the lowest level in nearly 12 months. Contract signings were likely impacted by the government slowdown, which made verifying income difficult for anyone needing a purchase mortgage. At the same time, rising prices and low inventory continue to impede sales.

Given the strong price increases over the past year, we're surprised we haven't seen more homes come to market. Rising prices always increase supply. With housing, though, the increase has been less than we expected.

Nevertheless, we are seeing at least a marginal increase in inventory, which is up 3.2% for the year. To be sure, i nventory remains very low, but if it continues to increase, you can be assured that the rate of home-price appreciation will slow. Rising supply always leads to a slowdown in the rate of price growth, if not an outright price reduction (which we don't expect).

New construction is another factor in raising overall supply. The Census Bureau hasn't published housing starts in a couple months due to the government slowdown, but it did release data on permits. On that front, permits for residential construction increased to 1.034 million units on an annualized basis in October, a considerable increase over the 918,000 units in August.

Unfortunately, all the gains are attributable to the multi-family segment. Single-family permits posted at 620,000 units on an annualized basis in October, which is actually a decreased compared with the 627,000 units in August.

The encouraging news is that we've seen a recent uptick in purchase-mortgage activity. Now, we'd just like to see this recent uptick morph into a long-term trend.

Courtesy of Jessica Regan.

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