Stagnant wages and escalating home prices have pushed homeownership out of reach for many Americans, but according to a new report from CoreLogic, the pace of home price growth should slow down in 2018.
The underlying conditions that have pushed home prices passed their pre-crisis peaks still remain. With unemployment low and the economy doing well, there are more and more prospective home buyers, but housing stock supply is very low. Home builders can’t keep pace with demand, and the foreclosure backlog is running dry.
But with the economy close to full employment, home prices are beginning to outpace wage growth. If home prices go beyond what people can afford, they essentially have to start coming down to meet what people can pay. CoreLogic estimates that 48 percent of the 50 largest metro areas in the U.S. have an overvalued housing stock, defined as being at least 10 percent higher than long-term sustainable levels. Overvalued housing stock will naturally lead to a slower pace of home price growth.
“There’s an inventory crisis in the U.S.,” said Sam Khater, deputy chief economist at CoreLogic. “There’s no other way to say it. It’s pretty much happening across every market in the U.S., with the exception of the markets in the Midwest and the western portions of the Northeast that have been economically struggling for a decade. The rest of the country, there’s just not enough shelter for people to occupy.”
In 2017, CoreLogic estimates that home prices rose 5.9 percent. For December 2017, home prices rose 4.3 percent year-over-year, with the most pronounced rises coming in western markets; Las Vegas rose 11.2 percent, San Francisco 10.1 percent, Denver 8 percent, and Los Angeles 7.8 percent.
But the torrid pace of price growth should slow down, according to CoreLogic’s forecast. While it still forecasts a 4.3 percent rise in home prices over the next year, that represents a drop the 5.9 percent in 2017. Furthermore, the month-by-month growth has already started to slow. December 2017 rose just 0.5 percent over the previous month. CoreLogic’s forecast for January 2018 is a 0.4 percent drop compared to December.
The month-by-month CoreLogic forecast shows a steady decline in year-over-year home price change.
“We’re just getting detached from our fundamentals,” Khater said. “Affordability is really getting stretched. You’re gonna have to slow down. You can only keep speeding for so long before you have to slow down and go at a more sustainable pace.”
CoreLogic’s forecasts are a projection of its CoreLogic Home Price Index (HPI). The forecasts take into account the current CoreLogic HPI, economic variables, and state-level forecasts weighted by the number of owner-occupied households per state.