The solid rise of home prices in December capped a year that saw the housing market strengthen because of a growing economy and low mortgages rates.
The S&P Case-Shiller 20-City Home Price Composite, a measure of housing prices in 20 American cities, showed that housing prices rose in December by 5.7 percent compared to the previous December, the same rate of growth as in November.
The seasonally adjusted U.S National Price Composite, which is a national average of home prices, grew by a similar 5.4 percent. This change was caused by very strong increases in the west coast, mostly driven by Portland, San Francisco, and Dallas
The housing market continued its strong growth since it bottomed out during the Great Recession in 2009. The seasonally adjusted month-to-month increase showed housing prices increased by 0.8 percent from November to December, which could be a sign that housing prices are leveling off.
“While home prices continue to rise, the pace is slowing a bit,” said David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P.
However, according to Douglas Porter, Chief Economist and Managing Director at BMO Financial Group, December is traditionally a slow month for housing and the increase is still a sign that the market is strong.
U.S. housing starts fell by 3.8% in January, which could pull down supply and likely to keep prices high.
“Even though prices continue to rise, the U.S. housing market will continue to have strong growth because mortgages rates are very low,” said Porter.
Continued concerns over the health of the global economy could have some consequences for the housing market. If it starts to temper U.S. growth, it could make buying a new home less desirable. However, if the economy does start to slow, the Federal Reserve won’t raise interest rates, which will keep mortgage rates low enough to keep the housing market growing at a good pace.
Jim O’Sullivan, the chief economist for High Frequency Economics, echoed this sentiment. “If the Federal Reserve raises interest rates, that would be negative for housing,” said O’Sullivan. “But that would mean the economy is improving and job growth is solid, which will keep the strong momentum going.”