Home Price Appreciation Stabilizes

It's fairly clear now that U.S. home prices have stabilized into a pattern of modest appreciation: ahead of inflation, which isn't that hard to do, but nowhere near a bubble.

It’s fairly clear now that U.S. home prices have stabilized into a pattern of modest appreciation: ahead of inflation, which isn’t that hard to do, but nowhere near a bubble. That puts to rest some of the concerns (of about a year ago) that the housing market would indeed overheat rather than merely recover, a situation that benefits no one in the long run. Even a less dramatic housing-bubble pop than the one of the mid-2000s would damage the economy, along with commercial real estate markets, all out of proportion to the damage it does to home prices, perhaps because the memory of the earlier bubble is still very much with us. In the post-recession world of the 2010s, it doesn’t take much to spook investors and employers.

On Tuesday the latest Case-Shiller home prices indexes were released, and while there was some gyration on a month-to-month basis, the more important metrics are year-over-year, since the indexes aren’t seasonally adjusted. In October 2013, the national index was up 10.9 percent compared with a year earlier, which reflected a heated market, though maybe understandable in the context of valuations returning from a panic-induced low. By January 2015 (Case-Shiller reports two months behind, rather than one), the year-over-year change for the national index was an increase of 4.5 percent. The year-over-year change hasn’t changed much over the last five months, pointing to a plateau.

Will the more modest appreciation turn into a decline in the fullness of this hear? Some observers have predicted that, but it seems unlikely unless there’s some kind of unforeseen shock to the entire economy, which is growing enough now to sustain some velocity in the housing market, though not enough to make another bubble—and remember, no one wants that. Besides, houses are still well below their bubble-peak valuations. Case-Shiller puts it at a little less than 8 percent below peak for its national index, but accounting for inflation over the last 10 years, and home prices are over 20 percent lower than they were at their previous peak. That’s a fair amount of runway. If prices maintain a slow appreciation, they’ll eventually return to peak levels, with much less risk of a collapse.

One more bit of good data for the housing industry (and the commercial real estate industry should always be happy about such numbers): Fannie reported on Tuesday that its single-family serious delinquency rate declined slightly in February to 1.83 percent, from 1.86 percent in January. The serious delinquency rate—mortgages over 90 days late, but not foreclosed yet—is down from 2.27 percent in February 2014, putting it at the lowest level since September 2008. Freddie Mac reported last week that its single-family serious delinquency rate declined in February to 1.81 percent, down from 2.2 percent in February 2014. The Freddie Mac rate is at its the lowest level since December 2008.