The Case-Shiller U.S. National Home Price Index, reported by S&P Dow Jones Indices, rose at a seasonally adjusted annual growth rate of 4.4% in June, faster than the 3.2% in April and the 3.7% in May. Home prices in nominal terms reached a new high and were 3% higher than the pre-recession peak. House price appreciation continued and averaged 4.5% over the first six months of 2017.
The Home Price Index from the Federal Housing Finance Agency (FHFA) rose at a seasonally adjusted annual rate of 1.4% in June, slower than the 4.1% increase in May. It was the lowest one in the past three years.
House price appreciation reflects both recovering demand and low inventory. Information provided by the Bureau of Labor statistics indicates that national payroll employment continues to grow. A healthier labor market is supportive of stronger housing demand. However, on the supply side, inventory of existing homes declined and the July unsold inventory was low, at 4.2 months. A month’s supply reading at 6.0 months is considered the benchmark for a healthy housing inventory.
The methodology used to construct the S&P/Case-Shiller National House Price Index means that it is based on prices of existing homes. However, the data suggest that new home prices have been rising faster than existing home prices since the recession. As a result, the gap between the two has widened from $20,000, its average between 1990 and 2008, to $80,000.
Although the labor market has strengthened and house price appreciation has improved home equity, the inventory of new homes also remains low. Builders remain optimistic, but the challenges faced by the industry are raising production costs and inhibiting housing production growth which is limiting inventory expansion and pushing up new home prices. Labor shortages represent one of the biggest problems that builders have been facing. In addition, the cost/availability of developed lots, regulations, and building materials shortages are other top problems faced by builders.