U.S. home prices were flat overall in May compared to April, according to the S&P/Case-Shiller home price index report. However, the major cities saw prices increase slightly.
The index's 10-city and 20-city composites each posted a gain of 1.1%, on an adjusted basis, compared to April.
On an unadjusted basis, the 10-city and 20-city composites were both down 0.2%, month over month.
Despite the slowdown in appreciation, home prices increased 4.4% nationally during the 12-month period ended May 31. The index's 10-city composite gained 4.7%, year over year, while the 20-city composite gained 4.9%.
Denver, San Francisco and Dallas reported the highest year-over-year gains among the 20 cities, with price increases of 10.0%, 9.7% and 8.4%, respectively.
‘As home prices continue rising, they are sending more upbeat signals than other housing market indicators,’ says David M. Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices, in a statement. ‘Nationally, single-family home price increases have settled into a steady four to five percent annual pace following the double-digit bubbly pattern of 2013. Over the next two years or so, the rate of home price increases is more likely to slow.’
As Blitzer points out, home prices have been rising at about twice the rate of inflation and wages.
‘Moreover, other housing measures are less robust,’ he says. ‘Housing starts are only at about 1.2 million units annually, and only about half of total starts are single-family homes. Sales of new homes are low compared to sales of existing homes.’
Blitzer says although first-time home buyers ‘are the weak spot in the market,’ the millennial generation should not be blamed, as the median age for a first-time home buyer has actually dropped slightly compared to historical norms.
‘Without a boost in first-timers, there is less housing market activity, fewer existing homes being put on the market, and more worry about inventory,’ he says, adding that recent research at the New York Fed shows that the ‘age distribution of first-time buyers has not changed much since 2000.’
The biggest challenge first-time home buyers face is that lenders often (but not always) require them to put 20% down.
That size down payment, ‘particularly for people who currently rent,’ Blitzer says, is having a huge impact on their willingness to buy a home.
‘Mortgage rates are far less important to first-time buyers than down payments,’ Blitzer says.