S&P CoreLogic Case-Shiller National Home Price Index Sets 30-Month High

The S&P CoreLogic Case-Shiller National Home Price Index covering all 9 U.S. census divisions rose 5.8% in the 12 months ended in December, up from the 5.6% year-over-year in November. The 10-city index increased by 4.9% on the year, up from 4.4%h, and the 20-city index gained 5.6% year-over-year juxtaposed to a previous 5.2% increase.

The increase in home prices shown by the index beat the median forecast by economists surveyed by The Wall Street Journal, who expected the 20-city index to increase by 5.4%.

Seattle, Portland, and Denver reported the highest year-over-year gains among the 20 cities over the 11 months leading up to December. Seattle led the way with a 10.8% year-over-year price increase in December, followed by Portland with 10.0%, and Denver with an 8.9% increase. Twelve cities reported greater price increases in the year ending December 2016 versus the year ending November 2016.

As mortgage rates continue to rise, some economists predict the current high rate of home-price growth will slow.

“I’m not sure that it’s a bubble because demand is coming from solid job growth and improving demographics,” said David Berson, chief economist at Nationwide Insurance. “I don’t think it’s a bubble but I don’t think it’s sustainable, nor is it healthy.”

Mr. Blitzer also disagrees, arguing that comparing current home price trends to historical trends requires adjusting for inflation.

“Home prices continue to advance, with the national average rising faster than at any time in the last two-and-a-half years,” said David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “With all 20 cities seeing prices rise over the last year, questions about whether this is a normal housing market or if prices could be heading for a fall are natural.”

As he pointed out, while it is true consumer prices are higher today than 20 or 30 years ago, the inflation rate is supposedly much lower.

“Looking at real or inflationadjusted home prices based on the S&P CoreLogic Case-Shiller National Index and the Consumer Price Index, the annual increase in home prices is currently 3.8%,” Mr. Blitzer added. “Since 1975, the average pace is 1.3%; about two-thirds of the time, the rate is between -4% and +7%. Home prices are rising, but the speed is not alarming.”