The U.S. housing market has not lost momentum. The S&P/Case-Shiller U.S. National Home Price Index showed an increase of 4.9 percent in September, up from a 4.6 percent increase in August.
"Home prices and housing continue to show strength with home prices rising at more than double the rate of inflation,” says David Blitzer, managing director and chairman of the Index Committee at S&P Dow Jones Indices.
This is obviously fantastic news for the 64(ish) percent of U.S. households that own homes, but it is discouraging -- at best -- for the property have-nots. As it stands now, housing affordability has practically reached national crisis levels, and when you throw in a possible December rate hike, the hope for more affordable housing could be quashed as the cost of home ownership rises.
But one reason for the growth in home prices, argues Jonathan Miller, president and chief executive of real estate appraiser and consultancy Miller Samuel Inc., is that people have more money to spend on housing, which is why we have such a tight housing market right now. Wage growth inched up slightly in the third quarter, for example, and when wages grow, so does the demand for housing.
"Recently we've seen a slight uptick in wage growth which has been stagnant for the last decade, and that drives housing demand. During the housing crisis, the demand for housing was driven by fast and easy credit," Miller says.
Also, the main reason why a rate increase is even on the table is because the economy looks solid. The GDP climbed 2 percent in the third quarter and the unemployment rate is a paltry 5 percent.
Given the economic climate, it's not clear that home sales or prices will stall in the immediate future, either, especially since members of the Federal Reserve Board have hinted that there will be a December hike in interest rates.
"What's going to happen, as you get closer to December, is if economic data continues to show robust results, you'll see a surge in sales activity as people try to make a purchase before interest rates pick up. And then you'll see sales slip afterward," says Miller. "It's often interpreted as if rising rates will slow demand, but the sales are just poached from future activity. There really is no correlation between interest rate trends and housing prices."
