Inventories Driving Price Gains Despite Rates

Home prices, as measured by the Federal Housing Finance Agency's (FHFA's) Housing Price Index (HPI), rose even faster on an annual basis in December than they had earlier in the fall. The year-over-year gain was 6.2 percent, up from 6.1 percent in the 12 months ended in November, and 6.0 percent in October.

FHFA's HPI report, which this month also in included fourth quarter data, is based on purchase prices of homes with mortgages backed by or sold to one of the two GSEs Fannie Mae and Freddie Mac.

On a quarterly basis, the HPI was up 1.5 percent compared to the third quarter.  The monthly change from November to December was 0.4 percent, down from a 0.5 percent gain from October to November.   

"Although interest rates rose sharply during the fourth quarter, our data show no signs of a home price slowdown," said FHFA Deputy Chief Economist Andrew Leventis. "Although it will certainly take more time for the full effects of the elevated interest rates to be felt, there is no evidence of a normalization in the unusually low inventories of homes available for sale, which has been the primary force behind the extraordinary price gains."

Home prices increased in 46 states and the District of Columbia from the fourth quarter of 2015 to the same period in 2016.  The largest gains were in Oregon at 11.0 percent; Colorado, 10.6 percent; Florida, 10.4 percent; Washington 10.2 percent; and Nevada 8.9 percent.

All nine census divisions had positive price changes over the year with the strongest increase in the Mountain division at 8.0 percent.  That region also posted the largest quarterly change at 2.1 percent. The largest monthly change was in the East North Central division, up 0.9 percent from November.

House price appreciation was weakest in the Middle Atlantic division, where prices rose 3.0 percent for the 12-month period, 0.9 percent quarter-over-quarter, but posted a 1.1 percent loss from November to December.