Tight inventory hikes US home prices, now up for 70th consecutive month
Former Reagan Economist Art Laffer on the outlook for the U.S. housing market.
Home prices across the U.S. hit an all-time high in February, new data released on Tuesday showed.
Prices rose 6.8% in the 12 months ending in February, according to the S&P CoreLogic Case-Shiller index, a 20-city national home price gauge. That marks the fastest pace of growth since June 2014. Prices increased on a seasonally adjusted basis of 0.8% month-over-month in February.
Meanwhile, home prices have been climbing for 70 consecutive months, according to chairman of the index committee at S&P Dow Jones Indices, David Blitzer, averaging an increase of 6% each year. Since March 2012, prices have jumped more than 54%.
This comes at a time when a lack of available inventory and rising interest rates are squeezing consumers in the housing market. Home construction is at its lowest level in decades, while the National Association of Home Builders predicts there will be fewer than 900,000 new home starts this year, even though the market could absorb 1.2 million to 1.3 million – indicating another year of underbuilding.
Demand, though, remains strong. New home sales in March beat expectations, according to data released Tuesday, increasing 4% to a seasonally adjusted 694,000. The median price of a new home sold last month, however, rose 4.8% year-over-year, to $337,200.
A lower supply of homes, coupled with strong demand, means that prices will continue to rise – a trend experts have told FOX Business they don’t expect to reverse any time soon.
Home prices are now higher than they were at the peak of the housing boom. The National Association of Realtors and Freddie Mac estimate that median price growth will accelerate by 3.5% in 2018, and in some cases will rise faster than income gains over the coming years.
Builders aren’t building more inventory for a number of reasons, including a shortage of labor in the industry, increased regulatory burdens, tariffs on materials like Canadian softwood lumber and a decline in construction loans thanks to post-financial crisis regulation.
Despite a tightening labor market and strengthening overall economy, the consequences of the current housing situation are manifold. It creates more obstacles for first-time buyers, impedes wealth creation and even potentially limits U.S. GDP growth.
“If housing construction got back to normal, we could easily have 3% GDP growth,” Lawrence Yun, chief economist and senior vice president of research at the National Association of Realtors (NAR), told FOX Business last month.