Economy Watch: More Evidence That Home Price Growth is Slowing
- Aug 12, 2014
Another metric shows that the growth in U.S. housing prices is slowing down: FNC reported on Monday that its Composite 100 index was up 8 percent in June compared with the same month a year ago; the year-over-year increases for the index have been slowing since peaking in February at 9.4 percent, which was the highest rate since 2006.
The FNC Composite 100 increased 0.8 percent from May to June. The index tracks pricing in the 100 largest MSAs in the country, and isn’t seasonally adjusted and excludes foreclosure auction sales, REO sales, and short sales. The company’s other, more focused indexes (10-MSA, 20-MSA, 30-MSA) likewise increased between 0.8 percent and 0.9 percent month-over-month in June, and likewise have been slowing down in terms of year-over-year growth.
Separately, CoreLogic reported last week that home prices year-over-year increased nationwide 8.8 percent compared with a year ago. The company predicts that from June 2014 to the same month in 2015, U.S. home price appreciation will be only 5.7 percent.
Fischer points to inaction on housing as slowing recovery
At a conference in Stockholm sponsored by the Swedish Ministry of Finance, Fed Vice Chairman Stanley Fischer noted on Monday that “three major aggregate demand headwinds” have kept a more vigorous recovery from taking hold in the United States. “The unusual weakness of the housing sector during the recovery period, the significant drag—now waning—from fiscal policy, and the negative impact from the growth slowdown abroad—particularly in Europe—are all prominent factors that have constrained the pace of economic activity,” he said.
The housing sector was at the epicenter of the financial crisis and recession, and it continues to weigh on the recovery, the vice chair noted. “After previous recessions, vigorous rebounds in housing activity have typically helped spur recoveries. In this episode, however, residential construction was held back by a large inventory of foreclosed and distressed properties and by tight credit conditions for construction loans and mortgages.”
Moreover, the wealth effect from the decline in housing prices, as well as the inability of many underwater households to take advantage of low interest rates to refinance their mortgages, may have reduced household demand for non-housing goods and services, Fischer said. “Indeed, some researchers have argued that the failure to deal decisively with the housing problem seriously prolonged and deepened the crisis,” he posited.
Wall Street ended the day up on Monday. The Dow Jones Industrial Average gained 16.05 points, or 0.1 percent, while the S&P 500 advanced 0.28 percent and Nasdaq was up 0.7 percent.