Home Prices Keep Rising at Faster Pace Than Inflation

Home prices are surging at a faster clip than inflation, meaning that a 5 percent increase in the value of a house now goes further than it did in 2005 or 2006 when the inflation rate was higher.

The latest S&P/Case-Shiller report on national home prices also finds that prices have surged from their lows after the housing meltdown of 2007-2009 at a quicker pace than they did during the 1997-to-2005 housing boom — and driven less by inflation.
The S&P/Case-Shiller index covering all nine U.S. census divisions recorded a slightly higher year-over-year gain, with a 4.7 percent annual increase in August 2015, compared to a 4.6 percent increase in July 2015, according to the latest update released Tuesday.
The steady groove of home price gains overall is a sign that demand is improving for existing and new homes.
Low mortgage rates and low consumer prices overall are contributing to the demand for housing.
“A notable part of today’s economy is the continuing low inflation rate; in the year to September, consumer prices were unchanged,” says David M. Blitzer, Managing Director and Chairman of the Index Committee for S&P Dow Jones Indices.
One result is that “a 5% price increase in the value of a house means more today than it did in 2005-2006, the peak of the housing boom when the inflation rate was higher,” Blitzer added.
A tight supply has supported price appreciation, which could draw more current owners to place their properties up for sale. However, more homes are needed that are affordable for first-time or young buyers to keep the housing recovery sufficiently humming along.
S&P/Case-Shiller found that San Francisco, Denver and Portland reported the highest year-over-year gains among the 20 cities with price increases of 10.7 percent, 10.7 percent, and 9.4 percent, respectively. Fifteen cities reported greater price increases in the year ending August 2015 versus the year ending July 2015.

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