Rising U.S. Home Prices to Encourage New Construction Activity in 2016

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According to the latest S&P/Case-Shiller Home Price Indices for December 2015, U.S. home prices continued their rise across the country over the last 12 months.
 
High-level U.S. Housing Market Data for December 2015
 

• The S&P/Case-Shiller U.S. National Home Price Index, covering all nine U.S. census divisions, recorded a slightly higher year-over-year gain with a 5.4% annual increase in December 2015 versus a 5.2% increase in November 2015.

• The 10-City Composite increased 5.1% in the year to December compared to 5.2% previously.

• The 20-City Composite's year-over-year gain was 5.7%, the same as November.

• Portland, San Francisco and Denver continue to report the highest year over year gains among the 20 cities with another month of double digit annual price increases.

• Before seasonal adjustment, the National Index posted a gain of 0.1% month-over-month in December.

• The 10-City Composite decreased by 0.1% and the 20-City Composite remained unchanged in December.

• After seasonal adjustment, the National and 20-City Composites Index both recorded a monthly increase of 0.8%. The 10-City Composite increased 0.7% month-over-month in December.

• Ten of 20 cities reported increases in December before seasonal adjustment; after seasonal adjustment, all 19 cities increased for the month.

• As of December 2015, average home prices for the MSAs within the 10-City and 20-City Composites are back to their winter 2007 levels.

• Measured from their June/July 2006 peaks, the peak-to-current decline for both Composites is approximately 11-13%. Since the March 2012 lows, the 10-City and 20-City Composites have recovered 34.7% and 36.3%.

Year-over-Year Analysis
 
The S&P/Case-Shiller U.S. National Home Price Index, covering all nine U.S. census divisions, recorded a slightly higher year-over-year gain with a 5.4% annual increase in December 2015 versus a 5.2% increase in November 2015. The 10-City Composite increased 5.1% in the year to December compared to 5.2% previously. The 20-City Composite's year-over-year gain was 5.7%, the same as November.
 
Portland, San Francisco and Denver continue to report the highest year over year gains among the 20 cities with another month of double digit annual price increases. Portland led the way with an 11.4% year-over-year price increase, followed by San Francisco with 10.3% and Denver with a 10.2% increase. Thirteen cities reported greater price increases in the year ending December 2015 versus the year ending November 2015. Phoenix had the longest streak of year-over-year increases, reporting a gain of 6.3% in December 2015, and the twelfth consecutive increase in annual price gains. Detroit posted a 7.1% year-over-year price, up from 6.3%, the largest annual increase this month.
 
Month-over-Month Analysis
 
Before seasonal adjustment, the National Index posted a gain of 0.1% month-over-month in December. The 10- City Composite decreased by 0.1% and the 20-City Composite remained unchanged in December. After seasonal adjustment, the National and 20-City Composites Index both recorded a monthly increase of 0.8%. The 10-City Composite increased 0.7% month-over-month in December. Ten of 20 cities reported increases in December before seasonal adjustment; after seasonal adjustment, all 19 cities increased for the month.

Market Analysis
 
"While home prices continue to rise, the pace is slowing a bit," says David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. "Seasonally adjusted, Miami had lower prices this month than last and 10 other cities saw smaller increases than last month. Year-over-year, seven cities saw the rate of price increases wane. Even with some moderation, home prices in all but one city are rising faster than the 2.2% year-over-year increase in the CPI core rate of inflation.
 
"Sparked by the stock market's turmoil since the beginning of the year, some are concerned that the current economic expansion is aging quite rapidly. The recovery is six years old, but recoveries do not typically die of old age. Housing construction, like much of the economy, got off to a slow start in 2009-2010 and is only now beginning to show some serious strength. Continued increases in prices of existing homes, as shown in the S&P/Case-Shiller Home Price Indices, should encourage further activity in new construction. Total housing starts have stayed above an annual rate of one million starts per year since last March and single family home have been higher than 700,000 units at annual rates since June. Housing investment continues its positive contribution to GDP growth."