The U.S. housing market continues to gain steam during the spring selling season, as national home prices increased more than expected during March. The national basis for single-family home prices rose 5.2 percent in the 12 months ended in March, according to the S&P/Case-Shiller Home Price index, which covers all nine U.S. census division.
“Home prices are continuing to rise at a five percent annual rate, a pace that has held since the start of 2015,” said David M. Blitzer, managing director and chairman of the Index Committee at S&P Dow Jones Indices.
Propelled by the spring selling season, home prices in the S&P/Case-Shiller 20-City Index, which measures the value of residential real estate in 20 major U.S. metropolitan areas, were 5.4 percent higher than a year ago, rising 0.9 percent in March. The 10-City Composites’ showed home prices gained an annual 4.7 percent, rising 0.8 percent in March from the month before.
Cities with the highest year-over-year gains in the 20-City index were: Portland (12.3 percent), Seattle (10.8 percent) and Denver (10. percent). There were 10 cities with greater price increases in the year ending March 2016 versus the year ending February 2016. The S&P/Case-Shiller 20-City Index is now 11.5 percent lower than its 2006 peak.
“These cities also saw some of the largest declines in unemployment rates among the 20 cities included in the S&P/Case-Shiller Indices,” said Blitzer.
“The economy is supporting the price increases with improving labor markets, falling unemployment rates and extremely low mortgage rates.”
The northeast and upper mid-west regions were at the other end of the ranking. According to the report, the four cities with the smallest annual price gains were Washington D.C., Chicago, New York and Cleveland.
“Another factor behind rising home prices is the limited supply of homes on the market,” Blitzer said. Data from the S&P/Case-Shiller index shows that home prices continue to rise faster than inflation, with razor thin inventory making it especially difficult for potential homebuyers. According to Blitzer, there hasn’t been this few homes on the market since the mid-1980s.
First-time homebuyers are being hit especially hard, as a combination of price appreciation and tighter inventory for entry-level homes are making it difficult for first-time homebuyer to enter the market. The median price for entry-level and mid-market homes have increased 4.8 percent year-over-year in March to $186,200.
“It remains a tough home buying season for buyers, with little inventory available among lower-priced homes,” said Svenja Gudell, chief economist at Zillow. “The competition is locking out some first-time buyers, who instead are paying record-high rents.”
Statistics on new and existing home sales this year reveals strong demand this spring selling season. Existing-home sales, which includes single-family homes, townhomes, condominiums and co-ops, rose 1.7 percent in April, with sales up six percent from a year ago. New homes are selling at the fast pace since the financial crisis, with sales skyrocketing 16.6 percent to a seasonally adjusted annual rate of 619,000 in April. In addition, pending home sales — purchases under contract but haven’t closed — increased for the third consecutive month in April, reaching its highest level since 2006, according to the latest report by the National Association of Realtors.
“April is often a bellwether month for how the spring and year will wind up,” said Jonathan Smoke, chief economist at Realtor.com. “We saw almost a half-million new listings come onto the market in April, so buyers appear to be jumping on the fresh inventory.
Home prices for the 20 metropolitan areas in the composite included: Atlanta (1.1 percent monthly change; 6.5 percent 12-month change); Boston (1.0 percent monthly change; 4.3 percent 12-month change); Charlotte (0.9 percent monthly change; 4.3 percent 12-month change); Chicago (1.0 percent monthly change; 1.9 percent 12-month change); Cleveland (0.1 percent monthly change; 2.8 percent 12-month change); Dallas (1.4 percent monthly change; 8.5 percent 12-month change); Denver (1.6 percent monthly change; 10.0 percent 12-month change); Detroit (0.7 percent monthly change; 6.2 percent 12-month change); Las Vegas (0.7 percent monthly change; 6.0 percent 12-month change); Los Angeles (0.7 percent monthly change; 6.5 percent 12-month change); Miami (1.1 percent monthly change; 6.2 percent 12-month change); Minneapolis (0.8 percent monthly change; 3.9 percent 12-month change); New York (0.0 percent monthly change; 2.7 percent 12-month change); Phoenix (0.3 percent monthly change; 5.6 percent 12-month change); Portland (1.5 percent monthly change; 12.3 percent 12-month change); San Diego (1.0 percent monthly change; 6.2 percent 12-month change); San Francisco (2.3 percent monthly change; 8.5 percent 12-month change); Seattle (2.4 percent monthly change; 10.8 percent 12-month change); Tampa (1.1 percent monthly change; 7.6 percent 12-month change); Washington D.C. (0.8 percent monthly change; 1.5 percent 12-month change).
“The underlying trend in home prices remains upwards, given the tightness of inventory, but it’s very likely that rising sales over the summer will be accompanied by reports of much smaller price gains or even modest declines,” said Pantheon Macroeconomics’ Ian Shepherdson.