Home Prices Healthy
The S&P/Case-Shiller National Home Price Index for October 2017 showed home prices moving higher by an impressive 6.2% year-over-year. That’s the highest rate of growth since June 2014. Price hikes should moderate and settle in the 5.0%-5.5% growth range. This forecast is based on several leading industry supply and demand indicators; inventory levels and new home sales. According to the U.S. Census Bureau, new home sales are running at a solid 733,000 per year rate, up from 400k in 2012 but well below bubble territory just above 1,000,000.
There are risks to this moderately bullish outlook. Affordability could be a problem if employment trends stall. As well, borrowing costs may rise due to the Fed’s rate-hike campaign and fiscal stimulus. These factors will likely prevent house prices from soaring at a double-digit rate any time soon. White-hot conditions aren’t always conducive to sustainable long-term growth in the industry so some moderation in pricing is most likely a good thing. After all, real estate has been a long-time foundation for U.S. GDP growth.