Home prices grew at their strongest rate in more than three years in August, an indication that despite slowing sales in recent months, demand for housing remains strong.
Continue Reading Below
The S&P CoreLogic Case-Shiller National Home Price Index, which covers the entire nation, rose 6.1% in the 12 months ended in August, up from a 5.9% year-over-year increase reported in July. That was the biggest annual increase since June 2014.
The 10-city index gained 5.3% over the year, up from 5.2% in July. The 20-city index gained 5.9%, up from 5.8% the previous month.
The pace of home sales has slowed in recent months, while price growth has continued to accelerate. Economists said that suggests the market is suffering from a lack of homes for sale, while demand remains strong.
Home prices are growing much faster than wages and rents, an indication that such gains are likely unsustainable.
"This is way above any other indicator in the economy," said Susan Wachter, professor of real estate at the Wharton School at the University of Pennsylvania "It is simply the longest price increase we've every experienced of this magnitude."
Continue Reading Below
Current levels of inventory of homes for sale are near their lowest point in 20 years.
Builders have struggled to keep up with increased demand for homes, as they face labor and land shortages and rising material costs. U.S. housing starts decreased in September for the fifth time in six months and remain significantly below historic norms.
Home-price gains have been widespread. Nineteen of 20 cities in the Case-Shiller indices reported price gains from July to August. Meanwhile, home prices in Seattle rose 13.2% over the last year, followed by Las Vegas with an 8.6% annual increase and San Diego with a 7.8% increases.
Month-over-month, the U.S. Index rose 0.5% in August before seasonal adjustment, while the 10-city rose 0.5% and the 20-city index rose 0.4% from July to August.
After seasonal adjustment, the national index rose 0.5% month-over-month, while the 10-city and 20-city indexes also both rose 0.5%.
Sales of previously owned homes declined on an annual basis for the first time since July 2016, that National Association of Realtors said earlier this month, a sign that the inventory shortage is taking a toll on the market. Sales fell 1.5% from the same month a year earlier.
"Home prices will not rise forever. Measures of affordability are beginning to slide, indicating that the pool of buyers is shrinking," said David Blitzer, managing director at S&P Dow Jones Indices.
Mortgage rates have begun to rise, which should ultimately begin to put a damper on price gains. The average rate for a 30-year mortgage touched 3.94% last week, up from a year earlier when it averaged 3.47%, according to Freddie Mac.
"Interest rates are starting to rise. That's generally the beginning of the end of a housing expansion," said Mark Zandi, chief economist at Moody's Analytics.
Write to Laura Kusisto at firstname.lastname@example.org
(END) Dow Jones Newswires
October 31, 2017 11:03 ET (15:03 GMT)