Case-Shiller: U.S. Home Prices Continued To Rise In May, But There Is No Bubble


U.S. home prices continued their upward climb in May, rising 0.2% on an adjusted basis compared with April and increasing 5.6% compared with May 2016, according to the S&P CoreLogic Case-Shiller home price index.

The 10-city composite was flat compared with April but was up 4.9% compared with a year earlier while the 20-city composite posted a 0.1% month-over-month increase and a 5.7% year-over-year gain.

Without seasonal adjustment, U.S. home prices increased 1.0% compared with April. The 10-city composite increased 0.7% on an unadjusted basis while the 20-city composite reported a 0.8% increase.

Seattle, Portland and Denver saw the largest year-over-year gains in May. Seattle led the way with a 13.3% year-over-year price increase, followed by Portland with 8.9% and Denver with a 7.9%.

As of May, home prices had increased on a year-over-year basis for 19 straight months. At this point, the big question lingering in many peoples’ minds is: “Is this a bubble?”

David M. Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices, says, although “home prices continue to climb and outpace both inflation and wages … housing is not repeating the bubble period of 2000-2006.”

“Price increases vary across the country unlike the earlier period when rising prices were almost universal; the number of homes sold annually is 20% less today than in the earlier period and the months’ supply is declining, not surging,” Blitzer says in a statement. “The small supply of homes for sale, at only about four months’ worth, is one cause of rising prices. New home construction, higher than during the recession but still low, is another factor in rising prices.”

Blitzer points out that it can be misleading to look at markets like Seattle, Portland and San Francisco, because in those cities the population is growing faster than in other areas of the country, putting an additional strain on inventory and artificially inflating home prices.

“For the last 19 months, either Seattle or Portland was the city with fastest rising home prices based on 12-month gains,” Blitzer says. “Since the national index bottomed in February 2012, San Francisco has the largest gain. Using Census Bureau data for 2011 to 2015, it is possible to compare these three cities to national averages. The proportion of owner-occupied homes is lower than the national average in all three cities with San Francisco being the lowest at 36%, Seattle at 46% and Portland at 52%. Nationally, the figure is 64%.

“The key factor for the rise in home prices is population growth from 2010 to 2016: the national increase is 4.7%, but for these cities, it is 8.2% in San Francisco, 9.6% in Portland and 15.7% in Seattle,” he continues. “A larger population combined with more people working leads to higher home prices.”

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