CoreLogic’s July Housing Price Index Report Shows Continued Slowing in Price Increases
CoreLogic’s current HPI report for July 2014, released earlier this month, represents the 29th consecutive month that the Housing Price Index has shown positive year-over-year changes. The year-over-year increases have only recently dropped in to the single digits. Previously the year-over-year increases were consistently in the double-digits. Price increases like that cannot go on unabated before another bubble is reached. CoreLogic’s May 2014 HPI report showed a YoY increase of 8.8% and in June it fell to a 7.5% increase. The latest report for July stayed steady at 7.4%.
The Market is Responding to Consumer Buying Power
This is a good sign as far as I’m concerned. Double-digit price increases are nice but they can’t go on forever. What seems reasonable is a leveling off at an eventual 3 to 5% in annual increases. A number low enough that it doesn’t attract investors looking to make a quick buck but sturdy enough to reward the homebuyer that is willing to put some time and effort in to their investment. When homes are invested in, in this manner, it helps make our streets, communities, cities, and world a better place by rewarding someone for taking care of their piece of the world. This is the type of housing market that we should be striving for, otherwise we are just on our way to another bubble.
Indeed CoreLogic’s July HPI report predicts the YoY change from July 2014 to July 2015 will be 5.7%. With increases slowing like this it will hopefully give consumers a chance to catch up to the recent jumps in prices, which is exactly what the market should be responding to; consumers, not speculation. Let’s hope that is the case.
The 30-year fixed interest rate has been hovering around 4.3% for over a year and is only one percentage point higher than its all-time low of 3.3%. It does seem likely that eventual increases in the APR will become more of a detriment to buying power than any other factors. A quick look at the Buyer’s Purchasing Power chart and you’ll see how drastic the impact can be. A 1% increase in the mortgage rate drops the purchasing power of the same monthly payment by 10%. In the example below a $400k home would cost nearly $250 more per month if the lending rate increased by only 1%.
As of this publication the Federal Reserve interest rate for 30-year Fixed Mortgages is at 4.2%. A great rate that is less than 1% above the record low.
California Real Estate Remains Strong
The CoreLogic report shows that California real estate is still poised for growth. With a year-over-year increase of 10.5%, housing prices are not about to grind to a halt in the state. Even with the increases homes for sale in California have been experiencing over the last 2 years the market still remains 14.5% below the peak it reached in 2006.
If you are in a position to buy, you shouldn’t wait any longer. You may have missed the huge increases after the market rebounded but the predictions show that buying a home in California is still a good bet and if the economy continues to improve it is likely that interest increases will not be far off.
Stay tuned for more info.