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April 24, 2018

Home prices surge in February – even as mortgage rates rise

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Home prices surge in February – even as mortgage rates rise 1

The critical shortage of homes for sale continues to drive home prices higher nationwide.

Values jumped 6.3 percent nationally in February compared with a year earlier, according the S&P CoreLogic Case-Shiller Home Price Index. That is a wider gain than January's 6.1 percent annual jump.

Home prices nationally were 6.7 percent higher than their peak in July 2006, but that does not account for inflation. After holding steady for the last month, mortgage rates began to climb again and are now at their highest level in four years.

Prices are increasing more sharply in the nation's largest metropolitan markets. The largest 10 cities saw an annual increase of 6.5 percent compared with 6 percent in February. The largest 20 cities saw 6.8 percent gains, up from 6.4 percent in January.

Local leaders continue to be Seattle (+12.7 percent), Las Vegas (+ 11.6 percent) and San Francisco (+10.1 percent). Thirteen of the top 20 cities saw bigger annual price increases in February than in January.

"Year-over-year prices measured by the National index have increased continuously for the past 70 months, since May 2012. Over that time, the price increases averaged 6 percent per year," noted David Blitzer, managing director and chairman of the Index Committee at S&P Dow Jones Indices. "With expectations for continued economic growth and further employment gains, the current run of rising prices is likely to continue."

These prices are based on a three-month running average, going back to December. Mortgage interest rates jumped sharply in January, but the rise does not appear to have thrown any cold water on hot prices. Prices are being driven entirely by very high demand and very low supply.

Inventory is down across the nation, and homebuilders, while increasing production slowly, are not coming anywhere close to meeting new demand. Builders are also not focused on the entry level, where the bulk of demand is, due to higher costs for land, labor and materials. Supply is leanest at the low end of the market, where demand is highest.

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