According to the Case-Shiller National Home Price Index, February home prices grew at their fastest pace in three years. While home prices have steadily grown in recent months, growth rates slowed in many areas month-to-month; the escalation of home prices from January to February indicates stronger housing markets. National home prices increased by 0.20 percent in February to a seasonally-adjusted annual rate of 5.80 percent appreciation.

Case-Shiller’s 20-City Home Price Index posted a month-to-month gain of 0.20 percent for a year-over-year gain of 5.90 percent. Seattle, Washington again topped the 20-City index with year-over-year home price growth of 12.20 percent. Portland Oregon followed with an annual price gain of 9.70 percent. Denver, Colorado was replaced by Dallas, Texas with a year-over-year home price growth rate of 8.80 percent. Fifteen cities posted higher year-over-year gains in home prices in February as compared to January readings.

Month–to Month Home Prices

Case-Shiller National, 20-City and 10-City Home Price Indices reported moth-to-month 0.20 percent home price growth before seasonal adjustment. After prices were seasonally adjusted, national home prices increased by 0.40 percent month-to-month; the 20-city index showed an increase of 0.70 percent and home prices in the 10-City Index rose by 0.60 percent after seasonal adjustment.  

Home Prices Rising on High Demand, Low Inventory of Homes Available

David M. Blitzer, Managing Director and Chair of the S&P Dow Jones Indices Committee, said that ongoing shortages of homes for sale continue to boost home prices as demand exceeds supply. First-time and moderate income home buyers continue to face affordability concerns as rising home prices can negatively impact buyers’ ability to qualify for mortgage loans.

Analysts said that while rising home prices are a sign of economic strength, housing market indicators such as housing starts have not had corresponding growth rates. New construction is viewed as the only way to ease demand for homes as rising home prices have so far not cooled demand.

January’s National Association of Home Builders Housing Market Index dipped two points from December’s revised reading of 69 to 67;  the index reading forecast for January was also 69.Analysts said that January’s reading was the second highest (after December 2016) since the peak of the housing bubble in 2005. January’s dip in builder sentiment was attributed to easing of builder enthusiasm, which spiked right after the U.S. presidential election. To put January’s home builder confidence reading in context, NAHB says that any index reading over 50 indicates that more builders than fewer have confidence in housing market conditions.

NAHB Sub–Index Readings for January

Three sub-index readings are used in compiling the NAHB Housing Market Index reading. Builder confidence in current housing market conditions fell three points to 72; builder confidence in housing market conditions over the next six months fell two points to 76. Builder confidence in buyer traffic in new housing developments dropped one point to 51.

Builders surveyed continued to cite the cost of new lots for development and the lack of skilled labor as obstacles to higher builder confidence.

After releasing January’s index readings, the NAHB said that while January’s readings were lower than those for December, a majority of builders have expressed confidence that the new administration will reduce regulatory pressure on home builders. NAHB also cited home builder concerns over mortgage rates, which rose nearly a percentage point in November and December before falling. Despite ongoing concerns, builder sentiment has steadily improved over time. On average, builder confidence averaged a reading of 61 in 2016 against 2015’s average reading of 59 and the 2014 average reading of 52.

Builder Outlook Seen as Key to Easing Home Shortage

Real estate and mortgage pros have consistently said that building more homes is necessary to ease the ongoing shortage of available homes. NAHB’s Housing Market Index is closely followed as a benchmark of home builder confidence. Higher builder confidence in current and future housing market conditions is viewed as a potential indicator of home building activity, but housing starts have not been uniformly allied with builder confidence.

Shortages available homes creates high demand creates concerns for potential buyers seeking affordable homes. Rapidly rising home price, particularly in high demand metro areas, have sidelined buyers who cannot compete against buyers making cash offers on homes with rapidly escalating prices.