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Case-Shiller 5.2% Annual Price Increase Year-Over-Year for October

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 5.2% annual increase in October 2015 versus a 4.9% increase in September 2015. The 10-City Composite increased 5.1% in the year to October compared to 4.9% previously. The 20-City Composite’s year-over-year gain was 5.5% versus 5.4% reported in September.

San Francisco, Denver and Portland continue to report the highest year-over-year gains among the 20 cities with another month of double-digit price increases of 10.9% for all three. Twelve cities reported greater price increases in the year ending October 2015 versus the year ending September 2015. Phoenix had the longest streak of year-over-year increases, reporting a gain of 5.7% in October 2015, the eleventh consecutive increase in annual price gains.

Month-over-Month
Before seasonal adjustment, the National Index posted a gain of 0.1% month-over-month in October. The 10-City Composite was unchanged and the 20-City Composite reported gains of 0.1% month-over-month in October. After seasonal adjustment, the National Index posted a gain of 0.9%, while the 10-City and 20-City Composites both increased 0.8% month-over-month. Ten of 20 cities reported increases in October before seasonal adjustment; after seasonal adjustment, all 20 cities increased for the month.

Analysis
“Generally good economic conditions continue to support gains in home prices,” says David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “Among the positive factors are consumers’ expectations of low inflation and further economic growth as well as recent increases in residential construction including single family housing starts. Inventories of existing homes have averaged around a five month supply for the past year, a level that suggests a fairly tight market with limited supplies. Sales of new single family homes, despite recent increases in construction, remain mixed to soft compared to the trend in existing home sales.

“The recent action by the Federal Reserve raising the Fed funds target rate by 25bp and spreading expectations of further increases during 2016 are leading some to wonder if mortgage interest rate might rise. Typically, increases in short term interest rates lead to smaller increases in long term interest rates. The chart below shows the average rate on 30-year fixed rate mortgages and the Fed funds rate. From May 2004 to July 2007, the Fed funds rate moved up from 1.0% to 5.25%; over the same period, the mortgage rate rose from about 6% to 6.75% during a sustained tightening effort by the Federal Reserve. The latest economic projections published by the Fed following the recent rate increase suggest that the Fed funds rate will be around 2.6% in September 2017 compared to a current rate of about 0.5%. These data suggest that potential home buyers need not fear runaway mortgage interest rates.”

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