In October, home prices slowed down in 20 US cities, making it the seventh consecutive month to register a dip in the price of housing. This is the longest consecutive decline in the market since 2014 and demonstrates a lull in demand due to lack of affordability.
Key Takeaways
- Higher mortgage rates are to blame for the lull with prospective buyers having difficulty entering the market.
- S&P CoreLogic Case-Shiller data Wednesday showed an annual gain of 5% increase in October after a 5.2% annual gain in September and 5.5% the month before.
- Estimates had the increase at 4.9%.
The Case-Shiller data shows the slowest price gain rate in two years, indicating a broad decline the housing market. Home sales and home building are also softening, although housing starts did rebound last month.
The seasonally adjusted index of 20 cities increased 0.4% from the month prior compared to estimates of 0.3%. The yearly data is considered to be less volatile and more reliable as an indicator of the overall trend, and demonstrates that home prices have been outpacing wage increases and making housing less affordable.
Mortgage applications dropped 4% recently to hit a 4-year low, with the rate of interest for a 30-year fixed mortgage now at 5.15%, the highest since April 2010.
The slowdown in price gains is not inherently negative, making it easier for new buyers to enter the market. At the same time, the decline in price increases results in less equity for existing homeowners.
The year-over-year gains were evident in all 20 cities, with a 12.8% increase in home prices in Las Vegas and approximately 8% in both San Francisco and Phoenix. On the other end of the spectrum was Washington with a 2.9% increase, Chicago with a rise of 3.3%, and New York which saw an increase of 3.1%.
US home prices continues to increase by around 5% annually, but slowdown is visible in some of the most red-hot markets; home prices are now declining in Seattle. #macrobond pic.twitter.com/Pk9Bqr00Z3
— Ulrik Harald Bie (@UlrikBie) December 26, 2018
Expert Outlook
Dave Blitzer, chairman of the S&P index committee, said:
“The combination of higher mortgage rates and higher home prices rising faster than incomes and wages means fewer people can afford to buy a house. Reduced affordability is slowing sales of both new and existing single-family homes. Sales peaked in November 2017 and have drifted down since then.”
Market Reaction
Gold jumped following the data posting a high of $1,277.12/oz and a low of $1,264.89/oz. Spot gold last traded at $1,276.93/oz with a gain of 0.74% on the day. The dollar dipped briefly following the report, and February gold futures are up 0.44% and trading at $1,277.50/oz.
Gold Price Chart
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