3 Reasons Why US Home Prices Are Going To Cool Off

Business Insider

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In recent months, U.S. home prices have been growing at a blazing hot double-digit pace.  

But going forward, the pace of home price gains is expected to slow. Paul Diggle of Capital Economics lists three reasons, which we paraphrase here:

  1. The double digit price gains we've seen recently are not sustainable. "If prices continue rising at 12.1% y/y – the latest CoreLogic reading – housing will be overvalued relative to rents within the next few months and relative to incomes in early-2015. And combined with the assumption that mortgage interest rates settle at their current 4.2% level, mortgage servicing costs will rise by 2%-3% of income each year."
  2. The home price gains have already made it harder for investors to find "bargains." It will take some time before traditional homeowner demand makes up for the decline in investor demand and this should slow the pace of home price gains.
  3. Inventory seems to have bottomed and "sellers are starting to return in greater force."

With that in mind we will closely be watching two three key housing data points out tomorrow. 

The FHFA house price index (HPI) and the S&P/Case-Shiller home price index for April are out at 9 a.m. ET. Economists polled by Bloomberg are looking for the HPI to rise 1.1% month-over-month. The 20-city Case Shiller is expected to rise 10.6% year-over-year, and 1.2% MoM. 

This is followed by new home sales for June at 10 a.m. ET. Economists polled by Bloomberg are looking for new home sales to rise 1.3% MoM to 460,000.

For the full year, economists estimate U.S. home prices will rise 8%.



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