26 September 2018

Growth in U.S. Home Prices Moderates

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Yearly growth in home prices across the U.S. continued to moderate early in the fourth quarter, suggesting the housing market may be settling into a more sustainable recovery. Prices nationwide increased 4.6% in the year ended in October. That was down from 4.8% in September and a far cry from the 10%-plus gains in the first quarter. A 20-city measure more closely followed by economists increased 4.5% over the year in October, also down sharply from double-digit gains earlier in the year.

Demand for housing has slowed significantly in recent months despite stronger job growth, a rebound in consumer confidence and falling gasoline prices, which puts more money into consumers’ pockets. Sales of both new and existing homes fell in November.

Yet the slowing trend is a positive for the 2015 housing outlook, say economists who follow the industry. Price appreciation of about 5% is close to a sweet spot where more buyers are able to purchase a home and current owners accumulate housing wealth, but the market avoids a price bubble that could trigger a financial crisis, as happened in 2007.

For 2014, however, first-time buyers accounted for only 29% of existing-home sales, according to data from the National Association of Realtors, much less than the historical norm of 40% for sales of primary residences.

But just as each real-estate market is local, she pointed out the Case-Shiller price index of 20 cities masks the individual pricing experience going on across the country. Still, the average home-price gain of about 5% is good, she said, and IHS Global is upbeat about home demand and prices in 2015. The forecasting firm projects home prices, as measured by an index compiled by the Federal Housing Finance Agency, will increase 5% over the course of next year and sales of new and existing homes will average 5.92 million, up from 2014’s current pace of about 5.3 million.

Key to the outlook is expectations of faster wage growth. IHS forecasts wages will grow 2.7% in 2015, better than the 2% or so yearly pace seen throughout most of the expansion.

Click here to access the full article on The Wall Street Journal.

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