Price growth for single-family homes sold in January slowed slightly, confirming that the housing market has stabilized and is responding to underlying economic forces rather than the chaos of a recession, data released Tuesday by S&P/Case-Shiller indicates.
On a national basis, prices appreciated 4.5% (seasonally adjusted) year-over-year in January 2015, compared to 4.6% (seasonally adjusted) year-over-year in December 2014, according to the S&P/Case-Shiller National Home Price Index, which tracks all nine Census divisions. The 20 cities tracked by S&P/Case-Shiller performed slightly better, with two separate indices measuring U.S. single-family home prices in 10 and 20 major cities during January gaining an annual 4.4% and 4.6%, respectively, up from annual gains of 4.3% and 4.4% in December.
“The combination of low interest rates and strong consumer confidence based on solid job growth, cheap oil and low inflation continue to support further increases in home prices,” said David M. Blitzer, chairman of the Index Committee at S&P Dow Jones Indices.
Of course, price changes varied significantly by city. Denver, Miami, and Dallas saw annual price increases of 8.4%, 8.3%, and 8.1%, respectively, in January. Following those leading cities were San Francisco (7.9%), Portland (7.2%), and Seattle (6.8%), with Las Vegas (5.9%) and Los Angeles and Tampa (both 5.7%) next in line. At the bottom of the pile were Cleveland (1.6%), New York (2.1%) and Minneapolis (2.2%).
“Regional patterns in recent months continue: strength in the west and southwest paced by Denver and Dallas with results ahead of the national index in the California cities, the Pacific Northwest and Las Vegas. The northeast and Midwest are mostly weaker than the national index," Blitzer noted.
Fourteen of the 20 cities clocked greater annual price increases in January 2015 than in December 2014. Six cities reported drops in their price appreciation rates, with San Francisco's 7.9% increase a drop compared to December 2014's 9.4% annual change.
Late 2013 and early 2014 witnessed several months of of double-digit annual price increases, but price appreciation has now been generally slowing for about a year. Economists forecast further slowdowns throughout 2015.
National Index, year-over-year change in prices (seasonally adjusted):
June 2013: 9.2%
July 2013: 9.7%
August 2013: 10.2%
September 2013: 10.6%
October 2013: 10.9%
November 2013: 10.8%
December 2013: 10.8%
January 2014: 10.5%
February 2014: 10.2%
March 2014: 9.0%
April 2014: 7.9%
May 2014: 7.1%
June 2014: 6.3%
July 2014: 5.6%
August 2014: 5.1%
September 2014: 4.8%
October 2014: 4.7%
November 2014: 4.7%
December 2014: 4.6%
January 2015: 4.5%
January marked the fifth month that the National Index decreased (by 0.1%) on a month-over-month basis. Both the 10 and 20-City Composites were basically flat in January. Again, results varied by city. Nine cities saw price appreciation grow in January compared to December (on a non-seasonally adjusted basis); Charlotte, Miami, and San Diego led the group with increases of 0.7%. San Francisco reported the biggest monthly decrease of all 20 cities, with a decline of 0.9% compared to December. Seattle and Washington, D.C., clocked monthly decreases of 0.5%. At least some of the monthly change can be blamed on unusually harsh winter weather.
“Despite price gains, the housing market faces some difficulties," Blitzer said. "Home prices are rising roughly twice as fast as wages, putting pressure on potential homebuyers and heightening the risk that any uptick in interest rates could be a major setback. Moreover, the new home sector is weak; residential construction is still below its pre-crisis peak. Any time before 2008 that housing starts were as low as the current rate of one million, the economy was in a recession.”
Groundbreakings on new homes starts fell a dramatic 17% in February compared to January, but were just 3.3% below the level in February 2014, according to Commerce, and can also be blamed on winter weather. Sales of previously-owned homes were up 1.2% in February as supply remains tight and prices rise. (Both reports are a month ahead of the S&P/Case-Shiller report, which lags by two months.)
“The slower pace of home value appreciation we’ve been seeing for the past few months is further proof of a market in transition, getting healthier as it returns to growth driven by fundamentals like more jobs, higher incomes and improving household formation,” said Stan Humphries, Zillow's chief economist. “This slower appreciation allows buyers and sellers alike to catch their breath, at the same time as confidence among renters grows. Roughly 5 million current renters have expressed a desire to buy this year, up from 4 million last year. As more renters transition into homeownership, rental demand will ease, helping to cool rapid rental appreciation while also helping create more rental vacancies that can be soaked up as more young households form.”
As of January 2015, prices for the MSAs (Metropolitan Statistical Areas, a geographic designation used by the U.S. government) within the 10-City and 20-City Composite indices are back to their autumn 2004 levels. Prices are still off their mid-summer 2006 peaks by about 16% to 17%. Prices have bounced back from their March 2012 lows by 28.2% and 29% for the 10-City and 20-City composites.
S&P/Case-Shiller is now releasing its National Home Price Index each month. Previously, it was published quarterly, while the 10-City and 20-City Composites were published monthly. The “July” numbers listed for the National Index above reflect a roll-up of data for the three-month average of May, June and July prices.
