Where next for US house prices?

Yesterday brought us up to date in the state of play in the US housing market. So without further ado let us take a look.

The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported a 3.2% annual gain in September, up from 3.1% in the previous month. The 10-City Composite annual increase came in at 1.5%, no change from the previous month. The 20-City Composite posted a 2.1% year-over-year gain, up from 2.0% in the previous month.

The first impression is that by the standards we have got used to that is a low number providing us with another context for the interest-rate cuts we have seen in 2019 from the US Federal Reserve. Of course it is not only the Fed that likes higher asset prices.


Another new Stock Market Record. Enjoy!

Those are 2 separate tweets from Monday from President Trump who not only loves a stock market rally but enjoys claiming it is all down to him. I do not recall him specifically noting house prices but it seems in the same asset price pumping spirit to me.

In my opinion the crucial part of the analysis provided by S&P comes right at the beginning.

After a long period of decelerating price increases, it’s notable that in September both the national and
20-city composite indices rose at a higher rate than in August, while the 10-city index’s September rise
matched its August performance. It is, of course, too soon to say whether this month marks an end to
the deceleration or is merely a pause in the longer-term trend.

If we look at the situation we see that things are very different from the 10% per annum rate reached in 2014 and indeed the 7% per annum seen in the early part of last year.That will concern the Fed which went to an extreme amount of effort to get house prices rising again. From a peak of 184.62 in July of 2006 the national index fell to 134.62 in February of 2012 and has now rallied to 212.2 or 58% up from the low and 15% up from the previous peak.

As ever there are regional differences.

Phoenix, Charlotte and Tampa reported the highest year-over-year gains among the 20 cities. In
September, Phoenix led the way with a 6.0% year-over-year price increase, followed by Charlotte with
a 4.6% increase and Tampa with a 4.5% increase. Ten of the 20 cities reported greater price increases
in the year ending September 2019 versus the year ending August 2019…….. Of the 20 cities in the composite, only one (San Francisco) saw a year-over-year price
decline in September

Mortgage Rates

If we look for an influence here we see a contributor to the end of the 7% per annum house price rise in 2018 as they rose back then. But since then things have been rather different as those who have followed my updates on the US bond market will be expecting. Indeed Mortgage News Daily put it like this.

2019 has been the best year for mortgage rates since 2011.  Big, long-lasting improvements such as this one are increasingly susceptible to bounces/corrections……Fed policy and the US/China trade war have been key players.

But we see that so far a move that began in bond markets around last November has yet to have a major influence on house prices. If you wish to know what US house buyers are paying for a mortgage here is the state of play.

Today’s Most Prevalent Rates For Top Tier Scenarios

  • 30YR FIXED -3.75%
  • FHA/VA – 3.375%
  • 15 YEAR FIXED – 3.375%
  • 5 YEAR ARMS –  3.25-3.75% depending on the lender

More recently bonds seem to be rallying again so we may see another dip in mortgage rates but we will have to see and with Thanksgiving Day on the horizon things may be well be quiet for the rest of this week.

The economy

This has been less helpful for house prices.There may be a minor revision later but as we stand the third quarter did this.

Real gross domestic product (GDP) increased 1.9 percent in the third quarter of 2019, according to the “advance” estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 2.0 percent. ( US BEA ).

Each quarter in 2019 has seen lower growth and that trend seems set to continue.

The New York Fed Staff Nowcast stands at 0.7% for 2019:Q4.

News from this week’s data releases increased the nowcast for 2019:Q4 by 0.3 percentage point.

Positive surprises from housing data drove most of the increase.

Something of a mixture there as the number rallied due to housing data from building permits and housing starts.Mind you more supply into the same demand could push future prices lower! But returning to the wider economy back in late September the NY Fed was expecting economic growth in line with the previous 5 months of around 2% in annualised terms.But now even with a rally it is a mere 0.7%.

Employment and Wages

The situation here has continued to improve.

Total nonfarm payroll employment rose by 128,000 in October, and the unemployment rate was little
changed at 3.6 percent, the U.S. Bureau of Labor Statistics reported today. Notable job gains occurred in
food services and drinking places, social assistance, and financial activities……..In October, average hourly earnings for all employees on private nonfarm payrolls rose by 6 cents to $28.18. Over the past 12 months, average hourly earnings have increased by 3.0 percent.

But the real issue here is the last number. Yes the US has wage gains and they are real wage gains with CPI being as shown below in October.

Over the last 12 months, the all items index increased 1.8 percent before seasonal adjustment.

So this should be helping although it is a slow burner at just over 1% per annum and of course we are reminded that according to the Ivory Towers the employment situation should mean that wage growth is a fair bit higher and certainly over 4% per annum.

Moving back to looking at house prices then wage growth is pretty much the same so houses are not getting more affordable on this criteria.


As we review the situation it is hard not to laugh at this from Federal Reserve Chair Jerome Powell on Monday.

While events of the year have not much changed the outlook,

You can take this one of two ways.Firstly his interest-rate cuts are not especially relevant or you can wonder why he did them? Looking at the trend for GDP growth does few favours to his statement nor for this bit.

Fortunately, the outlook for further progress is good

Indeed he seemed to keep contradicting himself.

 The preview indicated that job gains over that period were about half a million lower than previously reported. On a monthly basis, job gains were likely about 170,000 per month, rather than 210,000.

But I do note that house prices did get an implicit reference.

But the wealth of middle-income families—savings, home equity, and other assets—has only recently surpassed levels seen before the Great Recession, and the wealth of people with lower incomes, while growing, has yet to fully recover.

As to other signals we get told pretty much every day that the trade war is fixed so there is not a little fatigue and ennui on this subject. Looking at the money supply then it should be supportive but the most recent number for narrow money M1 at 6.8% shows a bit of fading too.

So whilst we may see a boost for the economy from around the spring of next year we seem set for more of the same for house prices.Unless of course the US Federal Reserve has to act again which with the ongoing Repo numbers is a possibility. The background is this though which brings me back to why central bankers are so keen on keeping on keeping house prices out of consumer inflation measures.Can you guess which of the lines below goes into the official CPI?


Whilst it is not sadly up to date it does establish a principle….



15 thoughts on “Where next for US house prices?

  1. Hi Shaun
    One of the few things from the recent past
    that is clear is that increased house prices
    are the be all and end all of TPTB.
    All we have to look forward to is deja vu 2008.
    Johnny could only sing one note.
    And the note he sang was this


  2. Came across this interesting article on the reality behind US manufacturing productivity statistics… Looks like trade and globalization was skewing it a lot more than understood and accepted.. An interesting point was about microprocessors… If consumer paid $200 for an improved version of a processor which was selling for $100 the previous year, this would be accounted as 2 processors were produced in the current year (which would obviously double productivity)… It is shocking how the productivity graphs change when they take computing sector out of it.. Very interesting..


    Shaun, appreciate if you could give your take on this please..

    • Hi Eternal Optimist

      My eyes alighted on this bit

      ” as well as improvements in product quality. ”

      This was something which attracted my attention post the EU Leave vote when I noted that it was women’s apparel which was driving UK Retail Sales growth.Furthermore sales were rising and prices falling in an apparent nirvana. In addition this area was related to part of the Formula Effect between the UK CPI and RPI.

      So I raised the issue of quality on the Royal Statistical Society website which starts simply with what is a coat? You may enjoy the thread but the short answer is that the talk of quality adjustments is misleading.


    • interesting article.

      being in the trade I long known that Moore’s Law had hit a slow down as chips became more complex – faster processing now done with predictive hardware, larger cache and multi cores on the same chip ( 4 cores is not quite the same as 4 separate CPUs ) instead of clock speed boosts ( which was the major driver before ). Advancement is flattening, top of the curve thing.

      to find they use such a simple formula is quite astonishing . but also reminds us all that if our stats are using incorrect data then we should not be surprised that they get things wrong.

      Indeed I blame it on the BoE , HMG or anyone else – they have a duty here – that they keep pontificating that the real world is “wrong” , tell us a lot ( like the “Unicorn” of output gap….. )


  3. Both the IYR which invests in Real Estate and REITs and the XHB which is pure house builders are currently testing the all time highs from 2007, so it looks like its over to you Jerome to get them through.

    Seeing as both Trump and Jamie Dimon are both leading the Fed around by the nose at the moment, and the fact that central bankers in the US and Europe are completely obsessed with inflating their housing bubbles, I don’t see any reason why the house builders shouldn’t also join in and do the same.

  4. The western world needs high house price gains and other assets like shares in order to compensate for the high debts.

    The same principle applies to low interest rates governments know any increase at the moment would burst the balloon.

    This can only go on for so long however, shares will become overvalued on profits and house prices can only go up so far before they become unaffordable and employment reverses.

    China production is struggling now and despite some analysts or governments thinking the worse in now behind us I am not so sure.

    In the UK they are talking of buying shares now in the hope of a bounce next year if the conservatives get in but profit warnings have increased this year and there will be many retail losses after Christmas is over.

    The UK promise of spend spend spend may help the UK GDP but borrowing will rise and no guarantee the rest of the economy will improve.

    But as for the US they will better cope than the UK imo as they be almost self sufficient with the way the economy works.

    However with tariffs imposed from China the cost of many items will rise and that could hit affordability in the US.

    • Hi Peter

      Let me reply to your posts in one go as the Office for National Statistics was on the case earlier.

      “The UK’s net worth was estimated at £10.4 trillion in 2018, an average of £156,000 per person.”

      “The main asset contributing to this rise was land which rose by £125 billion, while buildings also had a large impact with dwellings and other buildings and structures rising by £85 billion and £67 billion respectively.”

      It gets even sillier later.

      “While several assets, such as buildings, intellectual property products and inventories grew faster than average compared to recent years, the main factor reducing overall growth was the slow growth in the value of land during 2018 which grew by just 2.1%, the lowest annual growth since 2012. Figure 4 shows how important land is to growth in net worth, accounting for 40% of growth in net worth in 2018, and 69% in 2017.”

  5. Great blog as usual, Shaun.
    Zillow Real Estate Research have a good record on forecasting the Case-Shiller HPI growth rates and are calling for a 3.2% annual inflation rate for the raw index in October, unchanged from September, and a 0.3% monthly inflation rate for the seasonally adjusted index in October, down from 0.4% in September. These forecasts don’t seem to jibe altogether with reports of a critically low supply of homes for sale and builders being hobbled by high costs of land, labour and materials, including lumber. I must admit to experiencing some Schadenfreude hearing about the high lumber prices, as this is pretty much an own-goal by the Trump administration on their own housebuilding industry. They slapped countervailing and anti-dumping duties against Canadian softwood lumber imports in 2017, which are now before the WTO.
    That’s a great graph contrasting a US HPI with an imputed rent index. Unlike the comparable UK series, all the US series for consumer prices or personal expenditure take an equivalent rent approach to owner-occupied housing. The only exception are the US BLS’s experimental HICPs for all urban consumers and for the total population, which are like the Eurostat HICPs, and basically exclude OOH altogether. All is not lost, though. The BLS is committed to changing its HICPs to conform to the current Eurostat methodology, so if we are lucky we may see Eurostat incorporate OOH components based on a net acquisitions approach using dwelling prices by 2040 or so and the BLS will quickly conform to the new methodology. The BLS introduced its own HICPs in 2006, and it will be a bit of a let-down after such a long wait. I was expecting much better, much earlier.

    • Hi Andrew and thank you

      I see what you mean about lumber prices as the January 2020 future has gone from $305 at the beginning of May to $416 now. Mind you that is still well below the nearly $600 of May 2018. I remember the 2 year rally being a point of note at the time. Who knows where they will be in 2040? 🙂

      Cheers for the song link.I will have a listen

  6. Shaun, ‘postcard from SW Florida’. House sale going OK turned ‘real’ rather than virtual after appearance of buyers with home inspector. I won’t bore with the ridiculous process in the US, but until the money hits our account, nothing absolutely nothing is binding, deposits are a joke. Anyway, Florida is sinking, not because of stupid ‘warming’ or sea level emergencies, but because too many houses are being built for too many people moving in from out of state. Its not ‘snowbirds’ but everyone, our buyers are from Dallas and of a working age. House prices have indeed edged upwards over the last few months but are still slightly down from 18 months ago. There is no such thing as a US housing market ( just as there is not really a UK market) , there are wide variations regionally in state and between states. Unless someone has committed a ‘court recorded’ financial crime , no-one gets turned down for financing at 75% level and nearly everyone takes the 30 year fix.
    Economy here is booming still, no-one is without a job who wants one. Vacancy notices everywhere.
    SW will be red in ’20, SE will be blue, Central belt is anyone’s guess; overall Florida reflects US in general; 50/50.

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