WASHINGTON – U.S. housing appears to be insulated so far from the cooling global economy.
Home values and rental prices are steadily rising, fueled by strong demand and a tight supply of available properties, a pair of reports Tuesday showed. The solid demand drove sales growth early this year and spurred additional construction.
The Standard & Poor’s/Case-Shiller 20-city home price index climbed 5.1 per cent in the 12 months that ended in August — a level many economists view as more sustainable than the sharp double-digit gains at the start of 2014.
And in September, median rents nationwide rose a seasonally adjusted 3.7 per cent from a year ago, according to real estate data firm Zillow. As with home prices, the pace of rent increases appears more stable than the sharper increases earlier this year.
Still, while three years of solid hiring and low mortgage rates have bolstered real estate, further gains will likely require better pay for workers. Increases in home values continue to exceed average annual earnings, which have risen just 2.2 per cent from a year ago.
For now, homes in tech hubs with a high concentration of good-paying jobs appear to be the main beneficiaries of rising prices. S&P reported that San Francisco and Denver both enjoyed a 10.7 per cent year-over-year jump in home values, the largest of any city. Portland, Oregon’s annual gain of 9.4 per cent was the third-largest.
“Prices are rising the fastest in markets where job growth and net migration are the strongest and inventories are the tightest,” said Mark Vitner, an economist at Wells Fargo Securities. “Portland is an excellent example.”
Those same metro areas were among the leaders in the rental increases tracked by Zillow. At the same time, those high rental prices sparked some new construction, which has created more apartments and tempered the rental-price appreciation in recent months.
The median rent in San Francisco was $3,348 last month, a yearly increase of 13.3 per cent. The year-over-year increase in August was even higher — 14.2 per cent.
The housing market’s overall gains are defying the impact of a sluggish global economy. Falling commodity prices, weakened growth in China, a struggling Europe and tumult in emerging economies such as Brazil have hampered a world that is still battling its way out of the 2008 financial crisis.
Not every area of the United States is benefiting. Rental price growth has slowed in areas at the epicenter of the oil and natural gas industry, according to Zillow. Average oil prices have nearly halved in the past year to $44 a barrel. Houston’s rental costs are up 5.8 per cent over the past 12 months, down from annual growth above 6 per cent. Price appreciation has also slipped in Dallas and Tulsa.
But the S&P index shows that home values have advanced a solid 8.9 per cent in Dallas over the past year, a sign of resilience in the heart of Texas.
Overall in the United States, the housing sector has expanded for much of 2015. Sales of existing homes jumped 4.7 per cent in September to a seasonally adjusted annual rate of 5.55 million, the National Association of Realtors said last week.
The pace of home construction rose in September and is up 12 per cent so far this year compared with 2014. But the bulk of the growth has been fueled by condominiums and apartment buildings. Single-family-home construction — the heart of the housing market — was flat in September.
That reflects a greater preference for renting rather than home-buying since the Great Recession, which has reduced the percentage of Americans who own homes to nearly a 48-year low of 63.7 per cent.
Home values are rising largely because few properties are being listed for sale. The number of existing homes for sale has fallen 3.1 per cent in the past 12 months. In September, the number of available homes was equal to just 4.8 months’ of sales, below the six months’ supply that is typical of a balanced market.
Low mortgage rates are helping would-be buyers. The average rate on a 30-year fixed mortgage fell to 3.79 per cent last week, its 13th straight week below 4 per cent.