Friday, December 29, 2017

Question #8 for 2018: What will happen with house prices in 2018?

by Bill McBride on 12/29/2017 03:58:00 PM

Earlier I posted some questions for next year: Ten Economic Questions for 2018. I'm adding some thoughts, and maybe some predictions for each question.

8) House Prices: It appears house prices - as measured by the national repeat sales index (Case-Shiller, CoreLogic) - will be up over 6% in 2017.   What will happen with house prices in 2018?

The following graph shows the year-over-year change through October 2017, in the seasonally adjusted Case-Shiller Composite 10, Composite 20 and National indices (the Composite 20 was started in January 2000).

Case-Shiller House Prices IndicesClick on graph for larger image.

The Composite 10 SA was up 6.0% compared to October 2016, the Composite 20 SA was up 6.4% and the National index SA was up 6.2% year-over-year.  Other house price indexes have indicated similar gains (see table below).

Although I mostly use Case-Shiller, I also follow several other price indexes. The following table shows the year-over-year change for several house prices indexes.


Year-over-year Change for Various House Price Indexes
IndexThrough Increase
Case-Shiller Comp 20Oct-176.4%
Case-Shiller NationalOct-176.2%
CoreLogicOct-177.0%
Black KnightOct-176.5%
FHFA Purchase OnlyOct-176.2%

Most analysts are forecasting prices will increase in the 3% to 5% range in 2017.

Inventories will probably remain low in 2017, although I expect inventories to increase on a year-over-year basis by December of 2017.  Low inventories, and a decent economy suggests further price increases in 2017.

Perhaps higher mortgage rates will slow price appreciation.  If we look back at the "taper tantrum" in 2013, price appreciation slowed somewhat over the next year - but that was from a high level.  In June 2013, the Case-Shiller National index was up 9.3% year-over-year.  By June 2014, the index was up 6.3% year-over-year.

If inventory increases year-over-year as I expect by December 2017, it seems likely that price appreciation will slow to the low-to-mid single digits.

Here are the Ten Economic Questions for 2018 and a few predictions:

Question #1 for 2018: How much will the economy grow in 2018?
Question #2 for 2018: Will job creation slow further in 2018?
Question #3 for 2018: What will the unemployment rate be in December 2018?
Question #4 for 2018: Will the core inflation rate rise in 2018? Will too much inflation be a concern in 2018?
Question #5 for 2018: Will the Fed raise rates in 2018, and if so, by how much?
Question #6 for 2018: How much will wages increase in 2018?
Question #7 for 2018: How much will Residential Investment increase?
Question #8 for 2018: What will happen with house prices in 2018?
Question #9 for 2018: Will housing inventory increase or decrease in 2018?
Question #10 for 2018: Will the New Tax Law impact Home Sales, Inventory, and Price Growth in Certain States?