Housing Prices Rise Again As Sales Remain Strong

Housing prices have been consistently rising throughout the United States. According to a recent report from the S&P/Case-Shiller U.S. National Home Price Index, average housing prices across 20 metropolitan areas rose by 5.5% in October.

Trend of Rising Prices Persists

Prices have been rising steadily for the past 12 months. The 10-City Composite appears to be increasing at a constant pace. The index rose 5.5% in October, compared to a 5.4% increase in September.

Prices have been stable throughout the country, but some regions have experienced stronger increases than others. The markets in Denver, Portland and San Francisco have been the most robust. Prices in these regions have risen 10.9%, more than double the average year-over-year increase throughout the rest of the country.

David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices, said that rising prices are indicative of a healing economy. Generally good economic conditions continue to support gains in home prices,” stated Blitzer. “Among the positive factors are consumers’ expectations of low inflation and further economic growth as well as recent increases in residential construction including single family housing starts.”

Recent economic reports support his position. The last two job reports from the Bureau of Labor Statistics suggest that economic activity is rapidly improving, which is the most important factor affecting housing demand. The index could rise further if job growth proves to be more resilient in the coming months.

Could Price Increases Stall in 2016?

Analysts are hopeful that the trend will continue through 2016. However, there are a couple of reasons growth could stall.

The Federal Reserve recently enacted a rate increase in December and has hinted that it could raise rates further in the next meeting. Higher interest rates will inevitably make borrowing more expensive, although they may not hurt the housing market considerably if economic activity continues to rise.  

Slowing home sales could also be a leading indicator that prices will fall in the near future. The November report from the National Association of Realtors® showed that completed housing transactions fell 10.5%. Their data shows that the market may have started to peak in mid-summer, which means that there could be a possibility that slowing demand could cause a pricing correction.