What is happening with US house prices and its economy?

Sometimes it helps to look back so let us dip into Yahoo Finance from the 17th of December last year.

Home price growth has slowed for six consecutive months since April, according to the S&P CoreLogic Case-Shiller national home price index. And for the first time in a year, annual price growth fell below 6%, dropping to 5.7% and 5.5%, in August and September, respectively. October home price results will be released later this month.

So we see what has in many places become a familiar pattern as housing markets lose some of their growth. There was and indeed is a consequence of this.

“A couple of years of home prices running twice the rate of home income growth leads to affordability challenges,” said Mortgage Bankers Association Chief Economist Mike Fratantoni. “If you’re a buyer in 2019, you won’t see home price running away from you at the same speed in 2018.”

I think he means wages when he says “home income growth” but he is making a point which we have seen in many places where house price growth has soared and decoupled from wage growth. This has been oil by the way that central banks slashed official interest-rates which reduced mortgage-rates and then also indulged in large-scale bond buying which in the US included Mortgage-Backed Securities to further reduce mortgage-rates. This meant that affordability improved as long as you were willing to look away from higher debt burdens and the implication that should interest-rates rise the song “the heat is on” would start playing very quickly.

Or if you wish to consider that in chart form Yahoo Finance helped us out.

That is a chart to gladden a central bankers heart as it shows that the policy measures enacted turned house prices around and led to strong growth in them. The double-digit growth of late 2013 and early 2014 will have then scrambling up into their Ivory Towers to calculate the wealth effects. But the problem is that compared to wage growth they moved away at 8% per annum back then and the minimum since has been 2% per annum. That means that a supposed solution to house prices being too high and contributing to an economic crash has been to make them higher again especially relative to wages.

What about house price growth now?

Yesterday provided us with an update.

CoreLogic® (NYSE: CLGX), a leading global property information, analytics and data-enabled solutions provider, today released the CoreLogic Home Price Index (HPI) and HPI Forecast for February 2019, which shows home prices rose both year over year and month over month. Home prices increased nationally by 4 percent year over year from February 2018. On a month-over-month basis, prices increased by 0.7 percent in February 2019.

So there has been a slowing in the rate of growth which is reflected here.

“During the first two months of the year, home-price growth continued to decelerate,” said Dr. Frank Nothaft, chief economist for CoreLogic. “This is the opposite of what we saw the last two years when price growth accelerated early.

Looking ahead they do however expect something of a pick-up.

“With the Federal Reserve’s announcement to keep short-term interest rates where they are for the rest of the year, we expect mortgage rates to remain low and be a boost for the spring buying season. A strong buying season could lead to a pickup in home-price growth later this year.”

That gives us another perspective on the change of policy from the US Federal Reserve. So far its U-Turn has mostly been locked at through the prism of equity prices partly due to the way that President Trump focuses on them. But another way of looking at it is in response to slower house price growth which was being influenced by higher mortgage rates as the Federal Reserve raised interest-rates and reduced its bond holdings. This saw the 30-year mortgage-rate rise from just under 4% to a bit over 4.9% in November, no doubt providing its own brake on proceedings.

What about now?

If we look at monetary policy we see that perhaps something of a Powell Put Option is in place as at the end of last week the 30-year mortgage rate was 4.06%. Now bond yields have picked up this week so lets round it back up to say 4.15%. Even so that is quite a drop from the peak last year.

There is also some real wage growth according to the Bureau of Labor Statistics.

Real average hourly earnings for all employees increased 1.9 percent, seasonally adjusted, from February 2018 to February 2019. The change in real average hourly earnings, combined with a 0.3-percent decrease in the average workweek, resulted in a 1.6-percent increase in real average weekly earnings over this 12-month period.

In terms of hourly earnings the situation has been improving since last summer whereas the weekly figures were made more complex by the drop in hours worked meaning we particularly await Friday’s update for them.

Moving to the economy then recent figures have been a little more upbeat than when we looked at the US back on the 22nd of February but not by much.

The New York Fed Staff Nowcast stands at 1.3% for 2019:Q1 and 1.6% for 2019:Q2..News from this week’s data releases left the nowcast for 2019:Q1 unchanged and decreased the nowcast for 2019:Q2 by 0.1 percentage point.

Of the main data so far this week we did not learn an enormous amount from the retail sales numbers from the Census Bureau.

Advance estimates of U.S. retail and food services sales for February 2019, adjusted for seasonal variation
and holiday and trading-day differences, but not for price changes, were $506.0 billion, a decrease of 0.2
percent (±0.5 percent)* from the previous month, but 2.2 percent (±0.7 percent) above February 2018.

As these are effectively turnover rather than real growth figures a monthly fall is especially troubling but January had been revised higher.


We are observing concurrent contradictory waves at the moment. The effect from 2018 was of a slowing economy combined with monetary tightening in terms of higher mortgage-rates. More recently after the policy shift we have seen mortgage-rates fall pretty sharply and since last summer a pick-up in wage growth. So we can expect some growth and maybe we might even see a phase where wage growth exceeds house price growth. But it would appear that the US Federal Reserve has shifted policy to keep asset (house and equity) prices as high as it can so it may move again,

As to the overall picture this from Corelogic troubles me.

According to the CoreLogic Market Condition Indicators (MCI), an analysis of housing values in the country’s 100 largest metropolitan areas based on housing stock, 35 percent of metropolitan areas have an overvalued housing market as of February 2019. The MCI analysis categorizes home prices in individual markets as undervalued, at value or overvalued, by comparing home prices to their long-run, sustainable levels, which are supported by local market fundamentals (such as disposable income).

Only 35% overvalued? Look again at the gap between house price rises and wage rises in the Yahoo chart above. So if we look backwards very few places must have been overvalued just before the crash. Also times are hard for younger people.

Frank Martell, president and CEO of CoreLogic. “Our research tells us that about 74 percent of millennials, the single largest cohort of homebuyers, now report having to cut back on other categories of spending to afford their housing costs.”

I am not sure that goes with the previous research. Also if the stereotype has any validity times for millennials in the US are grim or should that be toast?

The price for Hass avocados from Michoacán, Mexico’s main avocado producing region, increased 34 percent on Tuesday amid President Trump’s calls to shut down the U.S.-Mexico border ( The Hill).

Let me end with a reminder from CoreLogic that averages do not tell us the full story.

Annual change by state ranged from a 10.2 percent high in Idaho to a -1.7 percent low in North Dakota





9 thoughts on “What is happening with US house prices and its economy?

  1. Hi Shaun
    A very interesting blog indeed.Close to home
    on Sunday I walked through Battersea,Wandsworth and ended at The Rocket in
    All the way are a mass of properties to be sold .I can’t imagine how many billions of pounds is
    sitting idle.
    This is before the power station is developed.
    Chelsea Barracks in central London is another large site also.
    I can’t imagine how you count the cranes.
    Battersea Park looked magnificent with the cherry blossom.magnolia,viburnum and forsythia etc.

    • Hi Midge and thank you

      Battersea Park is in spring bloom! I especially like the Magnolias at this time of year and they have put up another fine display. I use a picture of them as my Twitter header.

      I passed Chelsea barracks earlier and at the bottom corner if you have headed south over Chelsea bridge there is a large block of flats that are pretty much finished and will add to the stockpile you mention.

      That was a fair old walk by the way.

  2. Hello Shaun,

    “Our research tells us that about 74 percent of millennials, the single largest cohort of homebuyers, now report having to cut back on other categories of spending to afford their housing costs.”

    good god, I don’t want to be prissy but I had to cut back on my lifestyle to get on the housing market too , when you had to pay a bond and put 10% deposit down and IR were 8% ( soon to go to 15% ) . True I didn’t have to have a Ipad or Smart phone ( they didn’t exist then) .

    Nether the less I do think UK and US housing is over priced and poorly made tat and that the low IR to save the Banks and politicians is a national scandal.


    • Forbin,

      I think Shaun gave some indication of how much house prices had moved well ahead of inflation a while ago within a given period and it was quite an eye opener.

      I looked at my own personal circumstances and the same applied.

      The was one factor that needed consideration further however and that was the rate of interest rates which were far higher over 30 years ago than they are now.

      I think most people agree that wherever you look in the UK or abroad, housing prices gone way ahead of inflation.

      How long this is sustainable is another matter.

      To give an example in the 70s Gold was the thing to chase and a commodity where people thought it was a safe haven but its been a poor performer since the 70s.

      Property is a different kettle of fish with a rising population you can do without Gold but everyone needs a property to live in and its all due to supply and demand.

      There are limits however and at some stage there will be a correction. Another reason for high property prices in the UK is foreign investors taking stakes. Where the investment potential was London its now moved to Leeds, Manchester and Liverpool where foreign investors buying large blocks of flats for their rental yield.

  3. Not the best news today on the services PMI but I’d like to focus on housing, in this case Harlow. I have long said the private sectors answer to lack of affordable housing is slums and shanty towns yet they seem to have come up with something worse. They’re converting office blocks and literally warehousing people in them family’s next to drug addicts. Just make them work for their accommodation and you have the modern poorhouse.

    • Hi bill40

      Yes I saw that and thought it was very Dickensian and not in a good way.For those unaware here is the BBC on the subject.

      “The former office block – the Essex town’s tallest building – is one of hundreds up and down England which have been turned into housing without ever needing planning permission.

      Its owner, Caridon Property, claims it delivers a “good service” at the 14-storey 1960s office block – and that it does all it can to keep people safe.

      But since the building was resurrected as a housing complex in April 2018, crime has soared.

      Police figures show that in the first 10 months after people moved in, crime within Terminus House itself rose by 45%, and within that part of the town centre (within a 500m radius) by nearly 20% – to more than 500 incidents – compared with the previous 10 months. More than 100 incidents involved violence or sex crimes.”

  4. Great blog as usual, Shaun.
    Just to be clear, is the forecast for February released on April 2 just a backcast of the S&P CoreLogic Case-Shiller national HPI for January 2019 released on March 26? It showed a 4.3% 12-month increase, down from 4.6% in December. If this is all it is Zillow Real Estate Research backcast a 4.0% 12-month increase for this index for February on March 26 when the index was published, i.e. the same as the CoreLogic backcast.
    However that backcast, according to my calculation, would have implied a 0.16% increase in the national Case-Shiller index not adjusted for seasonal variation, not the 0.7% increase mentioned in your quote. Also Table 1 of the report you quoted from cited the Houston-The Woodlands-Sugarland Texas MSA as an urban centre with overvalued housing and a 3.1% backcast for February 2019. I have never seen a city breakdown of any Case-Shiller HPI that showed Houston. It certainly is not one of the Case-Shiller cities on the St Louis Fed database. (It seems a strange omission as it is the fifth largest metropolitan area in the US.) So I am a little bit confused. In any case, it seems real house prices are continuing to rise in America, but at a declining rate.
    By the way in December Sugarland has one of the major 30K races in North America. There is no end to the tourist attractions in Texas, whatever your interests might be.

    • Hi Andrew and thank you

      The CoreLogic numbers do take us up to February and included a revision of January too although the release did not say by how much. Last month they told us this.

      “Home prices increased nationally by 4.4 percent year over year from January 2018. On a month-over-month basis, prices increased by 0.1 percent in January 2019”

      Also I note that since then they have got more upbeat about house prices.

      “Looking ahead, the CoreLogic HPI Forecast indicates that the 2019 annual average home price will increase 3.4 percent above the 2018 annual average. On a month-over-month basis, home prices are expected to decrease by 0.9 percent from January 2019 to February 2019.”

      As to your question Houston is not in either the ten or twenty city index as you suggest and looking into the methodolgy I would suggest they get the numbers from their index on their census divisions. However it is not entirely logical as their additional indices breakdown only covers Florida and California.

  5. “I think he means wages when he says “home income growth” but he is making a point which we have seen in many places where house price growth has soared and decoupled from wage growth.”

    You’ve got this all wrong. 😉 The faster house prices grow, the greater the wealth effect for property owners and the more equity they can put down for further acquisitions of property. The key dynamic is not wages decoupling from house prices, but at what point concentration of the housing market in fewer and fewer hands reaches breaking point?

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.