Case Shiller

Home prices continued to made gains during May, according to a report released today by S&P Case-Shiller Index. The index, covering the entire nation and showed a rose 4.4 percent gain in the 12 months ended in May, which was slightly greater than a 4.3% increase in April.

The 10-city and 20-city indexes saw similar increases in May as in April. The 10-city index gained 4.7 percent over the preceding 12 months, which was slightly stronger than a 4.6 percent increase in April. The 20-city index gained 4.9 percent year-over-year and was identical to the increase in April. It’s worth noting that housing economist had expected a 5.7 percent increase to the 20-city index.

Price gains have remained largely flat in 2015 at just over 4 percent, after low double-digit gains in 2013. Housing economists said that is likely a good sign that the market is stabilizing closer to levels that most buyers can afford, although 4 percent is double the amount of average annual wage growth. Some housing economists believe price gains are likely to continue slowing and stabilizing at around 3 percent.

Prices are increasing at about twice the rate of wages and inflation, which is keeping many would-be home buyers out of the market. Housing starts and new home sales are also well below normal levels, helping to create inventory shortages. Sooner or later these elements in the housing market are likely to have a cooling effect on the market and over the next two years or so; the rate of home price increases is more likely to slow than to accelerate, simply due to the lack of availability of home at affordable price points.

Month-over-month home price gains were modest, according to the report. The index is not seasonally adjusted and rose 1.1 percent from April to May. The 10-city and 20-city indexes also both saw a 1.1 percent change over the month.

After seasonal adjustment, the national index was unchanged and the 10- and 20-city composites were both down 0.2 percent over the month. Ten of the 20 cities in the index reported month-over-month decreases in prices, after seasonal adjustment.

Monthly increases in prices have been slowing in 2015, pointing to a longer-term deceleration in home-price growth and home prices are coming down to a more normal level.

Denver, San Francisco, and Dallas remained among the strongest markets. Denver prices grew 10 percent year-over-year in June, while San Francisco prices rose 9.7 percent and Dallas prices rose 8.4 percent.

While the Case-Shiller appears to show home price gains relatively weak, a number of reports continue to point to rapid price gains. Last week, the National Association of Realtors reported that home prices reached a record high in June, jumping 6.5 percent from a year earlier to $236,400.

Case-Shiller likely is showing more modest gains because of differences in how it tracks home-price growth. NAR’s data look at all sales in the month and therefore may reflect that pricier homes were sold during that period. Case-Shiller looks at the same homes that have two or more recorded sales, tracking the data on a three-month rolling basis to ensure an adequate sample size.

Many housing economists remain concerned that home prices are rising out of step with incomes. That makes it particularly difficult for first-time home buyers to get into the market since they don’t own homes that benefit from the rise in values. The latest data showed that only 29 percent of total homes sold were to first time home buyers. To have a stable housing market we need about 40 to 45 percent of all home sold going to first time home buyers. Many home sellers wishing to move up simply can’t, because the supply of first time home buyers looking for starter homes aren’t finding an adequate supply and that’s the fly in the honey for a robust housing recovery.

If you’re a first-time home buyer and that real house-price appreciation is faster than wages are appreciating, then that makes it tougher to buy a house.

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