Continued Increases in Home Prices Defy Analyst Predictions
Despite warnings from economists and analysts that growth would be coming to an end, home prices rose once again in June of this year. In fact the 0.7 monthly increase marked the 14th consecutive month that prices had either stayed flat or risen. Moreover the 6.8% year over year growth recorded in June represents the largest annual increase seen since May 2014.
These latest figures come from CoreLogic’s Home Price Index as reported on by MarketWatch. As CoreLogic’s chief economist Frank Nothaft notes, the continued increases could eventually lead to a pullback as buyers become outpriced by the market. Adding to that problem, prices are significantly outpacing wage growth and mortgage rates have also been increasing. Nothaft summed up the issue, saying, “The rise in home prices and interest rates over the past year has eroded affordability and is beginning to slow existing home sales in some markets.”
To that point, while nationwide average prices are on the rise, that’s not the case in every market. For example the San Francisco Bay area has seen a 9% year over year decline in prices while the Southern California market has experienced a 12% YOY drop. In contrast, Nevada saw a 12.6% year over year gain, followed by Washington (12.1%), Idaho (11.5%), and Utah (10.4).
Because the rising pricing, CoreLogic found that one-third of Millennials who currently rent say they cannot afford the down payment to purchase a home. According to CoreLogic President and CEO Frank Martell, this is a major problem, saying “With home prices rising quickly over the past few years and supplies low, first-time homebuyers face ever-growing challenges to find and buy affordable entry-level homes.” He went on to declare, “More needs to be done to help our first-time buyers join the homeownership class.”
While pricing growth is expected to slow in the coming year, national averages are unlikely to recede. Currently CoreLogic is forecasting prices to be flat in the coming month but expects a 5.1% average year-over-year increase for June 2019. For the record, the company previously predicted a 5.2% increase for June 2018, which was clearly exceeded.
It seems we can add the housing market to the list of economic indicators that continue to defy expectations. Of course, while rising prices are good news overall, the downside is that first-time buyers are either being squeezed out of the current market or could be making poor financial decisions if they choose to buy in spite of the inflated costs. This reality would seem to suggest a slowing or even a reversal is coming but the real question continues to be, “when?”