House Prices Rise, But At A More Moderate Pace

According to the Federal Housing Finance Agency (FHFA), house prices rose by 0.1% on a seasonally adjusted basis over the month of November 2013. This is the 22nd consecutive month that house prices have increased. Over this 22-month period, house prices have risen by 13% and the November 2013 FHFA House Price Index is now roughly the same as the April 2005 index level.

As Figure 1 shows, despite the increase nationally, house price changes varied across regions of the country. According to the chart, house prices rose in five of the nine Census divisions; the Mountain division (0.5%), the West North Central division (0.5%), West South Central division (0.1%), East North Central division (0.5%), and the South Atlantic division (0.2%). However, these gains were partially offset by house price declines in the East South Central (-1.4%), New England (-0.4%), and Middle Atlantic (-0.4%) divisions. House prices in the Pacific division were unchanged during the month. Over the past year, however, house prices have risen in all nine Census divisions.

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House price changes are a key determinant of the amount of housing equity held by homeowners. Relative to the amount of housing-related debt taken on by homeowners, increasing house prices will raise the available amount of housing equity while falling house prices will lower the amount of housing equity. As Figure 2 below illustrates, between January 2012 and October 2013, house prices rose by 13%. Over roughly the same period, the first quarter of 2012 and the third quarter of 2013, the amount of housing equity expanded by 55%.

Since housing equity is often used by households to finance remodeling activity, the recent growth in house prices may be contributing to the current recovery in remodeling spending. NAHB’s Remodeling Market Index (RMI) further illustrates the recovery in remodeling activity. The Index has eclipsed 50 in 5 of the past 6 quarters dating back to the third quarter of 2012 and is currently at its historical high of 57. An RMI above 50 indicates that more remodelers report market activity is higher compared to the prior quarter than report that it is lower. As house prices continue to recover, NAHB expects remodeling activity to improve, growing by 0.7% in 2014 and by 2.1% in 2015.

For full histories of the FHFA US and 9 Census divisions, click here.

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