Home prices continue to rise in many housing markets across the U.S. according to new data released for March 2016 by the S&P/Case-Shiller Home Price Indices, and Black Knight Financial Services. House price growth has been particularly strong in recent years, averaging 5.6 percent annually according to the Federal Housing Finance Agency.

The S&P/Case-Shiller U.S. National Home Price Index, reported a 5.2% annual gain in March, down from 5.3% in April. Black Knight had said home values were up 1.2 Percent for the month of March, and 5.3% from this same time last year.

Washington was the top state in the nation with value gains at 2.1% appreciation, followed by Illinois, Oregon and Colorado, all at 1.9%, according to Black Knight. Portland, Seattle, and Denver reported the highest year-over-year gains among the 20 cities with another month of annual price increases. Portland led the way with a 12.3% year-over-year price increase, followed by Seattle with 10.8%, and Denver with a 10.0% increase, according to S&P/Case-Shiller.

LS - Home Prices Up March 2016

“Home prices are continuing to rise at a 5% annual rate, a pace that has held since the start of 2015,” says David M. Blitzer, Managing Director & Chairman of the Index Committee at S&P Dow Jones Indices. “The economy is supporting the price increases with improving labor markets, falling unemployment rates and extremely low mortgage rates. Another factor behind rising home prices is the limited supply of homes on the market. The number of homes currently on the market is less than two percent of the number of households in the U.S., the lowest percentage seen since the mid-1980s.

“Price movements vary across the country. The Pacific Northwest and the west continue to be the strongest regions. Seattle,Portland, Oregon and Denver had the largest year-over-year price increases. These cities also saw some of the largest declines in unemployment rates among the 20 cities included in the S&P/Case-Shiller Indices. The northeast and upper mid-west regions were at the other end of the ranking. The four cities with the smallest year-over-year prices gains were Washington DC, Chicago,New York, and Cleveland. The unemployment rates in Chicago and Cleveland rose from March 2015 to March 2016.”

Freddie Mac said today that the price-to-income (PTI) ratio appears to be the clearest indicator of the long-run sustainability of house prices, and is effective when trimming the list of U.S. housing markets down to a tractable watch list. However, in some metros, PTI ratios typically are much higher than they are in the U.S. as a whole.

For example, San Francisco is a desirable location, and residents historically have been willing to devote a larger-than-average share of their budgets in order to live there. In addition, buildable land in San Francisco is extremely limited, so the supply of housing can’t expand to meet the high demand. Both factors help explain the high PTI ratio in San Francisco.

Ten metros with unusually-high PTI ratios as of the end of 2015 appear in clusters — Raleigh and Charlotte in North Carolina; Jacksonville, Orlando, and Miami in Florida; Dallas, Austin, and San Antonio in Texas; and Portland and San Jose on the West Coast.

Chief Economist at Freddie Mac, Sean Becketti had said this about the home values:

“House prices have breached the peak levels of 2006, raising concerns about the long-term sustainability of current price levels. The difficulty of forecasting house price appreciation and the conflicting signals of the multitude of house price metrics make it challenging to assess whether — and where — house price risk is indeed increasing.

“Our first stage identified ten large metro areas with unusually-high house prices relative to the household incomes in those areas. However, the second stage failed to produce compelling evidence of increasing house price risk. As long as leverage remains low, home owners will remain resilient in the face of economic fluctuations. However, if leverage creeps up, home owners’ financial cushion will shrink, leaving them more vulnerable to economic shocks. In sum, our analysis suggests that, aside from isolated areas, we don’t need to worry about house prices — yet.”

Erik Sandstrom
LoanSafe's Mortgage Expert

I’m a Senior Loan Officer and LoanSafe mortgage expert. If you need a live rate quote, or need help getting a new mortgage, please call me direct anytime at 619-379-8999.