The FHFA, Federal Housing Finance Agency, tracks house prices in a way that truly reflects what’s happening with home sale prices. This index tracks repeat sales of homes through mortgages guaranteed by Fannie Mae and Freddie Mac.
Repeat sales of the same home is an accurate measurement of home sales price action in a market area. In the graph above, we see the 2006 high mark for this index and the point at where current home prices broke through it again around the beginning of 2016. It’s been climbing ever since.
Also, notice the three data items on the left. Since 1991, we see that the annual growth rate of house prices in this index averaged 3.5%. Since January 2012, the rate is 6.2%, and that line is still pointed straight up.
Of course, we can see how fast it can reverse in that sharp turnaround in late 2006. The question is whether we’re going to see something like that again in the near future or if we’ll see something more moderate, like a somewhat straight line to the right instead of a sharp mountain-top turnaround. There is a consensus among many experts that there is not a looming bubble burst on the horizon. They cite the lax lending practices that fed the last bubble as not in the mix anymore. Buyers getting mortgages these days are more stringently vetted, and loans are more likely to be repaid, not foreclosed.
Right now we see supply versus demand more in control of home prices across the country. Of course, there are hot spots, such as in the Pacific Census Division tracked in the FHFA Index.
From the latest FHFA Index report, we see that the Pacific Census Division is more than double many of the others, and the only division over 1% in price growth from July to August 2017. It’s a hot market, and homes costing more than $1 million often see multiple offers immediately when they hit the market. However, we see some consistency across most of the other divisions in the 0.5% to 0.6% range.
Demand across the country is up, but the supply of existing homes for sale is still below historic levels. Reasons include baby boomers holding onto their homes with adult children still living there, as well as watching their equity grow and waiting for the best time to sell.
As prices continue to rise, there could be pressure on this group to boot out their kids with a gift of a house down payment from the high equity sales of their homes. There are also many who purchased in the three years prior to the 2006 crash who are just now coming back into positive equity territory. They may have been waiting and wanting to sell for a few years now, and this could be the time to do so.
It is possible that all of these millions of owners will opt to list their homes tomorrow, but it’s highly unlikely. We could see a gradual growth in listed existing home inventory in the next couple of years, and return to more normal inventory levels. If so, we’ll not see that mountain-top point, but more of a plateau for home prices. Of course, predicting things like this comes with all kinds of cautions. Nobody knows for certain.
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