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Home Prices at or Near Pre-Crisis Peaks

Low inventory, affordability forces more buyers to the sidelines

Recent market indicators of home prices have approached or exceeded levels not seen since the peak of the housing bubble in 2006. But are conditions in the U.S. housing market different this time around?

Downward pressure on available inventory of homes for sale, and far less residential construction activity appear to be key factors driving prices higher in recent times.

National home prices increased 6.7% in June compared to the previous year, according to figures released in early August from CoreLogic Inc., a global property information, analytics and data provider. The Irvine, Calif.-based firm noted that unsold inventory as a share of all households was 1.9% in the second quarter of 2017, the lowest second-quarter reading in more than 30 years.

Other measures of home prices produced by CoreLogic and published by S&P Dow Jones Indices also posted strong gains. The S&P CoreLogic Case-Shiller U.S. National Home Price Index rose by 5.6% on an annualized basis in May. That represented a new high for the National Home Price Index, which is now 3.2% higher from its July 2006 peak, according to the most recent available data.

Similarly, the 10-City and 20-City Composite indexes posted year-over-year gains in May of 4.9% and 5.7%, respectively. The two composite indexes are still below the heights they reached during the July 2006 peak, but they’re more than 40% higher than the market trough recorded in March 2012.

Though prices continue to climb and outpace inflation and wages, housing isn’t repeating the bubble period of 2000-2006, S&P Dow Jones Indices said in its press release. Compared to the earlier period when price increases were “almost universal,” price appreciation currently varies by market; annual home sales are 20% less than they were; and the months’ supply of inventory is declining, not rising.

The National Association of Realtors (NAR) reported in late July that total housing inventory of existing homes available for sale was 7.1% lower in June compared to a year ago. Inventory has declined year-over-year for 25 straight months and is at a 4.3-month supply at the current sales pace.

The nation’s largest real-estate trade association said demand for buying a home is as strong as it has been since before the recession. Affordable listings continued to be “scooped up rapidly,” but severe housing shortages in many markets are keeping would-be buyers on the sidelines.

Other data suggests that construction activity has yet to accelerate at the rate needed to get near historical averages and keep up with new household formations. In the second quarter, residential investment’s contribution to the nation’s gross domestic product (GDP) declined by 6.8% compared to a year ago, according to the Commerce Department’s advance GDP estimates released in late July.

For its part, privately-owned housing starts were 2.1% higher in June compared with a year ago, at a seasonally adjusted annual rate of 1.22 million. That is still well below the historical average of about 1.5 million starts per year, according to Freddie Mac. And while June’s housing starts were the highest since February, on a quarterly basis they were 6.0% lower in the second quarter compared to the first quarter (keep in mind that the Commerce Department may revise June’s figures in later releases).

Building activity is lower partly due to a tight labor market in the construction sector. A low supply of available lots to build on, meanwhile, is a hindrance to a faster housing recovery, according to the National Association of Home Builders(NAHB).

Sixty-four percent of builders, for example, reported that the overall supply of developed lots in their areas was low to very low. That was the same share in May 2016, and the largest share of builders reporting low to very low lot supply since the NAHB began periodically asking the question in 1997 on its monthly Housing Market Index survey.


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