BLOG VIEW: While I realize it is an incredibly important metric to the housing industry, reporting on home prices – at least on the national level – was a fairly boring exercise in 2014. On a national scale, prices just kept inching up about 1%, on average, every month for the entire year. I know that stabilizing prices is a good thing for the industry, but a little more volatility would have made things more interesting from a reporting perspective. Maybe I just miss the excitement of last year's more volatile cycle.
Of course, one can find varying degrees of volatility within the local markets – it is there, if you look for it. And there's a million ways one can slice, dice and analyze home price data (just look at all the home price indexes (HPIs) that are out there – at least five major ones, by my count). I'm just saying that reporting on the big picture was kind of dull.
However, things got somewhat interesting this week, when Case-Shiller's national HPI showed the first month-over-month decline – albeit a small one – for the year. The index's 10-city and 20-city composites were down slightly as well, and the year-over-year gains are being steadily diminished. Could it be that home prices have finally ‘peaked’ and will soon be on their way back down?
CoreLogic recently forecast that home prices would rise as much as 4.6% in 2015, but I think that's too optimistic – I think 3% is more like it, especially if things keep going the way they have been. Fewer and fewer markets are reporting home price gains as time marches on.
The one factor I think will impact home prices most in 2015 (aside from the remote possibility of a Fed rate hike) is demand: If more millennials come out of the woodwork to purchase homes next year, as some are predicting, then that could drive up home prices. But I don't think most millennials are quite ready to buy yet. I think they're waiting to see if wages increase some more before making any decisions. No doubt, low interest rates will continue to be the main ‘hook,’ but lenders are going to have to find new ways to sweeten deals if they're going to get more millenials to the table.
Also somewhat interesting is a blog post from Lawrence Yun, chief economist at the National Association of Realtors (NAR), this week concerning the growing gap between new home prices and existing-home prices. This gap has widened and narrowed over the years but is currently at its widest point: As of November, the average price for a new home was about $280,900 while the median price of an existing home was $206,200 – a gap of about 36%. Historically, this gap has averaged 15% to 20%, Yun writes.
The reason? ‘Too few new homes are being constructed,’ Yun says.
‘Even though single-family housing starts are projected to have risen for the fourth time in the past five years, the level is essentially at a deep recession level. This year's single-family housing starts look to hit 650,000,’ he writes. ‘But the normal should be at least a million.’
This ‘persistent underproduction of new homes is one key reason for pushing up prices,’ he adds. ‘From 2004 to 2014, a typical newly constructed home price will have risen by 27 percent.’
Indeed, it will be interesting to see whether home prices remain stable, get bubbly or start to decline in 2015. Hopefully, it won't be dull. Either way, MortgageOrb will be here to cover the trends.
(Do you have an opinion to share with MortgageOrb? Get in touch! Send an email to pbarnard@zackin.com.)
