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Residential real estate news and coverage of how residential real estate impacts the mortgage industry and residential mortgage-backed securities.

Rising Home Prices Exacerbated by Tariffs

Home price indices continue higher

June 26, 2018

By SAM GARCIA Mortgage Daily

portrait of Sam Garcia

Just as relief was in sight for rapidly escalating home prices, new tariffs from the Donald Trump administration added more fuel to the fire.

A closely watched barometer of U.S. home prices, the S&P CoreLogic Case-Shiller Composite-20 Index, was a record 210.17 as of April.

The index ascended by 0.8 percent when compared to the prior month and was 6.6 percent higher versus one year prior.

S&P Dow Jones Indices released the index data on Tuesday.

The latest index came in 1.8 percent higher than the July 2006 peak of 206.52, while it has soared back 56.8 percent from the March 2012 low of 134.07.

Compared to April 2017, home prices in Seattle have leapt by 13.1 percent -- the most of any of the 20 metropolitan areas tracked in the report. Las Vegas was next at 12.7 percent, then San Francisco's 10.9 percent, Denver's 8.6 percent and
Los Angeles' 8.3 percent.

With a year-over-year gain of just 3.0 percent, Chicago fared worst in the Case-Shiller report.

David M. Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices, noted in the report that 10 of the 20 cities reflected in the index have surpassed their previous peaks.

"However, if one adjusts the price movements for inflation since 2006, a very different picture emerges," Blitzer said. "Only three cities -- Dallas, Denver and Seattle -- are ahead in real, or inflation-adjusted, terms. The national index is 14 percent below its boom-time peak and Las Vegas, the city with the longest road to a new high, is 47 percent below its peak when inflation is factored in."

A written statement from Genworth Mortgage Insurance Chief Economist Tian Liu said that expectations of home-price relief were destroyed by new tariffs.

"We see tariffs placed on Canadian lumber and other imported products as adding fuel to already high home price growth," Liu stated. "We had hoped that the implementation of the tax reform would be a catalyst for homebuilders to pass on cost savings to homebuyers and expand the production of more affordable homes. These new tariffs may force homebuilders to hold tight on price amid uncertainties about rising material costs."

The purchase-only home price index from the Federal Housing Finance Agency came in at 262.5, inching up 0.1 percent from March and climbing 6.4 percent higher than the same month in 2017.

FHFA uses sales price data from Fannie Mae and Freddie Mac mortgage transactions to determine its index.

FHFA's index was 8.9 percent higher than April 2017 in the Mountain region, the largest gain from a year earlier of any of the nine Census Divisions tracked by the regulator.

With a gain of just 4.6 percent, the West South Central division experienced the lowest appreciation. The division fell 0.1 percent on a month-over-month basis.

CoreLogic Inc.'s HPI released earlier this month indicated that a 1.2 percent rise was recorded for national home prices between March and April. The increase was 6.9 percent between April 2017 and April 2018.

CoreLogic estimates that the increase between April and last month was 0.2 percent, while prices are expected to increase 5.3 percent from April 2018 to April 2019.

Keller Williams Chief Economist Ruben Gonzalez said in a written statement that home prices are expected to quickly rise this summer.

"Mortgage rates have leveled off at the moment, and we are continuing to see year-over-year declines in inventory levels," Gonzalez said. "As supply continues to be the primary restrictive factor on sales, we expect demand to continue to drive prices up in the range of 6 to 8 percent in the next couple of months."

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Sam Garcia founded Mortgage Daily in 1998 and became its full-time publisher in 2000. Prior to his news career he worked in mortgage lending for two decades.

[email protected]

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