Home prices continued to grow in February according to the Case-Shiller Home Price Indices. National home prices grew at a seasonally-adjusted annual pace of 4.20 percent as compared to national home price growth of 3.90 percent in January. Case-Shiller’s 20-City Home Price Index showed higher home price growth rates in February with average annual home price growth of 3.50 percent. January home prices grew by 3.10 percent for cities included in the 20-City Index.
The lowest year-over-year home price growth rates were posted by Chicago, Illinois with 0.70 percent; New York City posted 1.50 percent growth, and Dallas, Texas with 2.50 percent home price growth.
Phoenix, Arizona home prices grew by a seasonally-adjusted annual rate e of 7.50 percent; Seattle, Washington home prices grew by 6.00 percent year-over-year. Tampa, Florida’s home price growth was tied with Charlotte, North Carolina’s home price growth rate of 5.20 percent. Analysts said that long-standing market conditions of high buyer demand, low inventories of available homes, and mortgage rates near record lows contributed to February’s home price growth.
Gains Across 20 City Composite
Craig Lazzara, managing director and global head of index investment strategy at S&P Dow Jones Indices, said February results “were broad-based with gains in every city in our 20-City Composite; 17 of 20 cities saw accelerating prices.”
February readings were based on home sales completed before the Coronavirus impacted the U.S. economy and government restrictions on all but essential activities reduced buyer traffic and slowed home sales. Areas supported by tourism and recreation were expected to see sharp declines in home prices and sales.
Fed Promises to Use All Remedies as Coronavirus Crisis Grows
The Federal Reserve’s Federal Open Market Committee said it would use all available tools to steady economic conditions destabilized by the Coronavirus pandemic. The FOMC said in its post-meeting statement that “The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook in the medium term.”
Committee members did not change the current federal interest rate range of 0.00 to 0.25 percent and pledged to hold the Fed rate steady until the economy has weathered the public health crisis and was on track to achieve the Fed’s dual mandate of full employment and price stability.
The National Association of Home Builders reported a housing market index reading of 74 in February; the index reading was one point lower than for January and was only two points below the highest reading of 76 reported in December. Readings over 50 indicate that most builders consider housing market conditions to be positive.
Factors contributing to builder confidence included strong housing markets and low mortgage rates; job growth and higher wages also boosted builder confidence.
Low Inventory Influences Home Prices
Low inventories of available homes continued to drive demand and rising home prices. Homebuyers faced with low supplies of existing homes turned to new home developments for additional options. First-time homebuyers faced obstacles including affordability and student loan debt that negatively impacted the ability to save for a down payment and qualify for home loans.
High costs of building materials and lots contributed to homebuilder expenses and higher home prices. Analysts noted that environmental and zoning issues also presented challenges for builders and limited their ability to meet the rising demand for affordable single-family homes.
Composite indices used to calculate the Homebuilders Housing Market Index slipped one point in each category. Builder confidence in current market conditions for newly-built single-family homes fell to an index reading of 80 and builder confidence in market conditions over the next six months dipped to 79. Buyer traffic volume in new housing developments dropped to 57, but buyer traffic readings of 50 or more were historically rare until recently.
Analysts identified correlations between the Housing Market Index and readings on consumer sentiment. The University of Michigan’s Consumer Sentiment Index and the Conference Board’s Consumer Confidence Index readings trend close to the NAHB Housing Market Index but are reported one month behind the Housing Market Index.
Regional Builder Confidence Mixed
Homebuilders reported mixed confidence in housing market conditions throughout the U.S. Market Conditions improved in the Northeast where homebuilder confidence was five points higher at 67. The Midwestern region reported a builder confidence reading of 62, which was five points lower than January’s reading. Homebuilder confidence in the South rose two points to an index reading of 79; homebuilder confidence fell four points in the West to 82.
Regional builder confidence levels reflect local economic conditions and events impacting housing markets.
The Federal Open Market Committee of the Federal Reserve issued its scheduled post-meeting statement Wednesday. Policymakers unanimously decided to leave the target federal funds rate range unchanged at 1.50 to 1.75 percent.
FOMC members reasserted previous views that inflation was “subdued” and the economy was growing at a moderate pace. The Fed typically bases decisions about interest rates on its dual mandate of achieving maximum employment and an annual inflation rate of 2.00 percent.
U.S. Economy Strong, Fed Chair Sees No Immediate Risk From China
FOMC cut the target interest rate range three times in 2019 to offset higher prices associated with a trade war with China, but the Committee considered recent progress in trade negotiations as an indication that there was no current need for further rate cuts. Fed Chair Jerome Powell said he was not concerned about immediate risks from China.
In its current assessment of economic conditions, the Fed cited a strong labor market and job growth but said that business investments and exports were weak. Core inflation readings, which exclude volatile food and fuel sectors, consistently ran below 2.00 percent. The FOMC changed language in its statement to indicate a goal of achieving an inflation rate of 2.00 percent; previous statements referred to an inflation goal of near 2.00 percent.
Committee members will continue to monitor current and developing economic conditions to determine when or if to change the benchmark interest rate range in future meetings.
Fed Chair: Fed Is Monitoring Potential Impact Of Coronavirus Outbreak
Concerns over trade conflicts with China were overshadowed by an outbreak of a strain of Asian influenza in China. The disease, caused by a coronavirus, is extremely contagious and spreads quickly. This could impact global economic conditions as international air travel and shipping may be limited or stopped to prevent further spread of the virus.
Fed Chair Jerome Powell said that although the Fed is not worried about an immediate threat, the FOMC members would continue to monitor how and where the current outbreak of Asian influenza spreads to determine if changes to the Fed’s monetary policy positions are necessary. Tensions in the Middle East were not mentioned in the FOMC statement or Fed Chair Jerome Powell’s post-meeting statement.
Case-Shiller Home Price Indices reported that national growth of home prices rose by 0.30 percent in November. Analysts said that slim inventories of available homes boosted home prices. Whether or not home price growth continues gaining speed depends on variables including supplies of homes for sale, affordability and home-buyer confidence in the economy.
Mr. Craig Lazzara, managing director and global head of index investment strategy at S&P Dow Jones Indices said, “It is, of course, too soon to say whether this marks an end to the deceleration [of home price growth] or is merely a pause in the longer-term trend.”
Phoenix Holds First Place In Home-Price Growth For 6 Consecutive Months
Case-Shiller’s 20-City Home Price Index showed that all cities tracked reported year-over-year growth in home prices after seasonal adjustments. Phoenix, Arizona held the top position with home price growth of 5.90 percent; Charlotte, North Carolina held second place in the 20-City Index with 5.20 percent growth in home prices and Tampa, Florida held third place with year-over-year home price growth of 5.00 percent.
The Case-Shiller 20-City Home Price Index posted a year-over-year gain of 2.60 percent in November and home prices rose by 0.10 percent in November as compared to October. Case-Shiller reported that home price growth increased by 3.50 percent nationally on a seasonally adjusted annual basis.
Buyers Seeking Affordable Homes Inland
Home-buyers sought less expensive homes in inland states as high-priced homes in coastal regions continued to be unaffordable for many. Slim supplies of homes contributed to bidding wars that drove home prices higher. Analysts said that home prices are set to drop in high-cost markets as the home-buyers move to more affordable markets.
The Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, reported a 4.90 percent gain in November home prices for properties associated with mortgages owned by Fannie Mae and Freddie Mac; this reading was compiled on a seasonally-adjusted annual basis.
FHFA data noted that the Mountain Region reported slower month-to-month growth in home prices in November, but all geographic regions reported positive growth in home prices year-over-year. The Mountain region includes the states of Arizona, Colorado, Idaho, Montana, Nevada, New Mexico, Utah, and Wyoming; these states typically offer a lower cost of living and affordable home prices as compared to high priced coastal areas.
The Federal Open Market Committee of the Federal Reserve announced its unanimous decision not to change to the current target federal funds range of 1.50 to 1.75 percent. The committee’s customary post-meeting statement said the decision not to change the Fed’s target range for federal funds was based on factors including a strong labor market, moderate economic growth, continued job growth, and low unemployment.
Economic readings reviewed prior to the FOMC meeting held Tuesday and Wednesday supported the achievement of the committee’s dual mandate to achieve maximum employment and maintain price stability.
According to the post-meeting statement issued on December 11, FOMC members consistently review incoming global and domestic economic news to determine if the Fed’s monetary policy should be adjusted. Chair Powell signaled that the federal funds rate may not change in 2020, but repeated the FOMC’s frequently-repeated caveat that monetary policy is subject to change as world news and economic conditions may warrant.
Expected And Realized Economic Conditions Contribute To Fed’s Monetary Policy
FOMC members reviewed their expectations of economic performance and compared them with actual readings in evaluating economic performance as connected to the Federal Reserve’s dual mandates of maximum employment and price stability. Low unemployment and overall inflation readings near two percent supported the Committee’s decision not to change the target range for the federal funds rate.
Fed Chair Expects Strong Economy To Continue
Federal Reserve Chair Jerome Powell said in a scheduled press conference that he and his colleagues in the Federal Open Market Committee are confident that strong economic conditions will prevail over the next few years. Mr. Powell said that the Fed expects the national unemployment rate to remain near a 50-year low at approximately four percent; he said that the national unemployment rate is expected to remain low in the near-term. Chair Powell said that the economy has remained strong for 11 years; this is the record for the longest run of positive economic conditions.
Inflation remains below the Fed’s objective of 2.00 percent; Chair Powell said that the overall inflation rate averaged 1.30 percent, but core inflation, which excludes volatile food and energy sectors averaged 1.60 percent. Chair Powell said that the core inflation reading was a more reliable indicator of long-term inflation.
Jobs and wages increased in lower to middle-income communities, but the business and manufacturing sectors weakened. Mr. Powell suggested that the Fed would leave interest rates unchanged in 2020 unless economic and news events indicate that a change in the current monetary policy becomes necessary.
Case-Shiller’s National Home Price Index reported U.S. home prices grew by 3.20 percent year-over-year in July; as compared to year-over-year home price growth 0f 3.00 percent posted in June. Cities with the highest rates of year-over-year home price growth were Phoenix, Arizona with 5.80 percent year-over-year home price growth. Las Vegas, Nevada had 4.70 percent year-over-year home price appreciation and Charlotte, North Caroline bumped Tampa, Florida from the top three cities with home price appreciation of 4.60 percent. Tampa, Florida posted 4.50 percent year-over-year home price growth in July.
Home Price Growth Stalls In West
14 cities had higher home price gains than in June and Seattle, Washington was the only city in the 20-City Index to post lower home prices. Analysts said that after years of rapid and unsustainable growth in home prices on the West Coast coupled with economic expansion and job growth in areas with lower home prices. July readings for home-price growth in western cities that posted double-digit price growth percentages in recent years were far lower. Home prices in Portland, Oregon rose 2.50 percent year-over-year; Los Angeles, California home prices rose 1.10 percent and San Francisco, California posted year-over-year home price growth of 0.20 percent.
High Home Prices Ease Demand Caused By Low Supply Of Homes For Sale
As home prices in many markets skyrocketed, would-be buyers were sidelined by affordability cash buyers and strict mortgage loan requirements. With home prices stabilizing and mortgage rates at near-record lows, more buyers will likely enter the market. This would increase demand on already slim supplies of homes for sale and cause home prices to rise at a faster pace than they have in 2019. Current rates of home price growth remain higher than current inflation and wage growth, but are low enough to encourage home buyers who were previously unable to keep up with rapidly rising home prices.
Seven cities posted higher rates of home price growth year-over-year in July as compared to readings for year-over-year home price growth from June 2018 to June 2019. The National Association of Realtors® said that sales of pre-owned homes were higher in July for the first time in months. The supply of available homes tightened in June; this trend is expected to boost home prices as demand for homes increases.