Just when it looked like home prices may have hit a ceiling, low interest rates could give them another boost.
A new report from real-estate data firm CoreLogic suggests that annual home-price growth will increase by 5.4% by July 2020. That would represent a shift from what has happened over much of 2019.
The S&P CoreLogic Case-Shiller index for home prices, a widely-cited barometer for the national housing market, registered the slowest pace of home-price growth since 2012 in June of 2.1%. A year earlier, home prices were rising at an annual rate of 6.3%.
Some major housing markets, such as New York, Miami and Seattle, actually experienced a decline in home prices either on a monthly or annual basis, per the Case-Shiller index. In recent months, home-price growth had become weaker as would-be buyers were priced out of these and other markets.
CoreLogic’s Home Price Index was less pessimistic, registering a 3.6% uptick year-over-year in July. Like Case-Shiller, the report noted some parts of the country where prices had fallen, namely Connecticut and South Dakota.
But recent home sales data provides a silver lining for the housing market. Sales activity has picked up — albeit modestly — as consumers sought to take advantage of the low mortgage rates available currently.
Mortgage rates have fallen throughout much of 2019. Loan rates generally track the path of the 10-year Treasury note. Treasury yields have fallen in recent months amid compounding concerns related to trade tensions and the state of the global economy.
“With the for-sale inventory remaining low in many markets, the pick-up in buying has nudged price growth up,” Frank Nothaft, chief economist at CoreLogic, said in the report. “If low interest rates and rising income continue, then we expect home-price growth will strengthen over the coming year.”
How much room home prices have to grow remains an open question. CoreLogic estimated that the real-estate markets in nearly one in four metropolitan areas were undervalued. CoreLogic defines an undervalued market as one where home prices are at least 10% below what it determines to be the sustainable level where supply and demand are balanced.
Meanwhile, 40% of markets were at value, according to CoreLogic. That means roughly a third of markets nationwide are overvalued — and that could mean that price growth could slow or prices could fall if enough buyers are priced out of the market again.
Two funds that tracks housing stocks, iShares Dow Jones US Home Construction and SPDR S&P Homebuilders have risen throughout 2019.
Written by: Jacob Passy for Realtor.com