by Arthur Murray
Jan 12 207
The S&P CoreLogic Case-Shiller Home Price Index, one of the most respected measures of the U.S. housing industry, shows home prices for the 12 months ending in October 2016 were 5.6 percent higher than the same period the year before. Those price gains were up from the 5.4 percent annual increase in September.
The biggest hikes among the 20 cities included in the index came in Seattle, Portland, and Denver. Seattle’s year-over-year price gain was 10.7 percent, Portland’s was 10.3 percent, and Denver’s was 8.3 percent.
WILL THE HOUSING PRICE GAINS BE SUSTAINABLE?
Despite the gains, the outlook is uncertain, according to David M. Blitzer, managing director and chairman of the Index Committee at S&P Dow Jones Indices. “Home prices and the economy are both enjoying robust numbers. However, mortgage interest rates rose in November and are expected to rise further as home prices continue to outpace gains in wages and personal income.”
John Helmick, CEO of Gorilla Capital, one of the country’s top purchasers of distressed real estate, sees an eerie trend – even in one of the cities with the best year-over-year performance. “What we’re seeing in many housing markets today is very similar to what we saw in ’02-’06. We saw this incredible exuberance, and this belief that ‘I need to buy a house now because in six months all the houses will be more expensive.’ That generated an incredible increase in house prices, especially here in Eugene, Ore. But that is not realistic, or sustainable.”
He says market watchers need to remember how “incredible exuberance” worked out before. “This could lead to another housing bubble,” Helmick says.
MORE SHORT-TERM PRICE GAINS IN THE OFFING?
Blitzer says nothing likely will change in the near term. “Affordability measures based on median incomes, home prices, and mortgage rates show declines of 20-30% since home prices bottomed in 2012,” he says. “With the current high consumer confidence numbers and low unemployment rate, affordability trends do not suggest an immediate reversal in home price trends.”
In fact, Gregg Nelson, co-founder of Trumark Homes, forecasts improvements. “2017 will be the year we begin the long-delayed shift from rentals to for-sale housing. We believe we will see continued strengthening in the overall economy, and finally see the recovery extend to parts of the nation that have yet to experience much improvement.”
Nelson cites reasons for his optimism: “This will coincide with an increased desire/intent by the millennial generation to move from renting to buying, as confidence in the economy builds. And perhaps most critically, we should see a pull-back in some of the onerous regulatory environment that has hindered the availability of mortgages, as well as development financing.”
He also believes some different markets will show big price gains. “There will be a corresponding substantial increase in housing prices in the areas that have so far been lagging in this recovery, such as Phoenix, Sacramento, the Inland Empire, and other secondary and tertiary markets.”
But Blitzer, the Index Committee chairman, isn’t so sure about the future. “Home prices cannot rise faster than incomes and inflation indefinitely,” Blitzer says.