Home prices in the United States have hit an all-time high, topping the previous record set over a decade ago and marking the end of the worst era for the housing market since the Great Depression.
National Home Price Index
September’s average home price beat July 2006’s peak by 0.1%, per the S&P CoreLogic U.S. National Home Price Index. August’s index reading sat 0.1% below the 2006 record. The gains have fueled optimism for a more sustainable expansion.
When adjusted for inflation, the index remains roughly 16% below the peak of over ten years ago. The economy’s recent overall recovery, though, is leading the housing market in the right direction as prices have jumped 5.5% over the past 12 months.
The recovery has taken four years since it bottomed out in 2012 when home prices were 27% below their peak. The crash saw over nine million American families lose their homes.
While prices have recovered, other warning signs exist. New home construction is still down, the homeownership rate sits near a five-decade low, and mortgages are difficult to secure, especially for lower income earners. Increasing mortgage rates might present another obstacle for additional price growth.
Income gains have slogged behind the price growth, hinting the rate of appreciation is not tenable. Since 2012, incomes have only grown at 1.3% while home prices have increased 5.9%, adjusted for inflation. From 1975 to the present, incomes grew 1.9% while home prices increased 1.1%.
Reasons for Optimism
Simultaneously, there are some signals of gaining strength in the housing sector. Single-family starts were up 11% in October according to the Commerce Department and remain well under the historical average, leaving room for further improvement. The portion of first-time buyers is also up to 33% from 31% a year ago, slowly creeping closer to the historical average of 40%. The lack of first-time buyers since the crash has distressed the market.
The share of homeowners who are underwater (those who owe more than their home is worth) is down to 12%. The ratio had been close to one-third at its nadir, according to Zillow.
Lenders have shown more caution of late. Under usual conditions, similar to those seen in the early 2000’s, roughly 12% of mortgages are at risk of default, but as of the second quarter of 2016, just 5% of mortgages are at risk.
Another byproduct of the national recovery has been an increased mobility of the labor force, stemming from home sales and relocations.
The current state of the nationwide housing market leaves plenty of room for improvement, and experts and consumer alike are paying close attention as the calendar flips to 2017 and beyond.
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