Home Prices Reach Pre-Recession Peak

The national S&P CoreLogic Case-Shiller Index reached a post-recession high of 184.8 in September, an index level last seen in July 2006.

As multifamily housing values continue to rise so too do single family home prices. The national S&P CoreLogic Case-Shiller Index, which tracks home prices, reached a post-recession high of 184.8 in September, an index level last seen in July 2006.

Click on image to enlarge.
Click on image to enlarge.

On an annual basis, the index increased 5.5 percent in September, compared to a 5.1 percent gain the prior month. From the 2012 trough, average home prices across the nation have increased 37.9 percent.

While certain cities surpassed their pre-recession peak years ago and some are still yet to reach 2006 levels, the recovery of the national average represents an important milestone for the housing market.

Leading markets were secondary cities that have also experienced strong rent growth in recent years. Seattle topped the Case-Shiller Index with 11.0 percent year-over-year growth, while Portland (10.9 percent) and Denver (8.7 percent) followed. These metros have seen significant economic and employment growth, strong population gains, specifically among Millennials, and offer relative affordability compared to other gateway and coastal cities.

Not only are home prices growing, but other real estate metrics such as housing starts and home sales have been on the rise as well. Housing starts jumped 25.5 percent in October to 1.3 million, marking the best rate of starts since August 2007.

Existing home sales increased 5.9 percent in October, reaching an annualized rate of 5.6 million, the highest pace since February 2007. The gains were widespread geographically, with sales increases in the Northeast, South, Midwest and West. As a result of strong sales activity and a lack of new development, homes spent an average of 41 days on the market, compared to 57 days, the previous year.

Sales of new homes also showed strong gains, increasing 17.8 percent on an annual basis.

Housing metrics’ return to pre-recession levels bode well for the industry in general, however affordability concerns remain. From July 2012 to September 2016, home prices have risen at an average real annual rate of 5.9 percent, while real disposable personal income per capita has increased only 1.3 percent annually.

Like apartments, most new homes have been built at the high-end. A low supply of starter homes has made it difficult for young people to purchase their own properties. Significant student loans, expensive down payments and the desire for residential flexibility have also deterred young adults from home buying.

One potential cause for concern is the recent uptick in interest rates following the 2016 election, as one of the biggest factors in purchasing a home is the ability to pay off a mortgage. Interest rates on home loans have been at historical lows for a number of years as a result of monetary policy and a low inflationary economy.

In just a few weeks following the 2016 election however, mortgage rates have increased more than 30 basis points and seem to be following an upward trajectory. If interest rates rise quickly, home sales could retreat as buyers choose to wait for a more tranquil rate environment.

However, significant pent-up demand for housing in today’s market should support home sales in the near term. As the economic recovery churns forward and incomes finally rise, many people who have chosen to live with parents or roommates will be able to create households of their own and drive demand for housing of all types.

With the home price recovery finally behind us, the housing industry, seems poised and ready to reach new peaks.

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