Home prices continued to rise during the first month of 2018, though the pace of growth is expected to slow down this year.
The Case Shiller National Home Price Index rose 6.2 percent compared with January 2017, essentially the same as the 6.3 percent year-over-year increase reported in December, according to data released Tuesday.
The gains tighten the squeeze on prospective buyers as price increases outpace income gains—a trend that’s largely been driven by limited housing stock. Lack of new housing construction means inventory is expected to remain tight in the near future. But the sector is expected to face some demand-weakening effects later this year with rising mortgage rates and tax reform impacts that could de-incentivize homeownership in some part of the country.
“You have home prices rising faster than median incomes, and you have mortgage rates going up. Both of those things are going to put pressure on affordability,” said Robert Brusca, chief economist at Fact & Opinion Economics, a Manhattan-based consulting firm. “And I think they’re going to show that rising housing prices are a trend living on borrowed time.”
The 20-city index, which covers major metropolitan areas around the country, jumped 6.4 percent over the year, compared to a 6 percent gain in the 10-city index.
The same three cities have reported the highest year-over-year gains as in the last few months. Seattle once again topped the list, with a 12.9 percent increase, followed by Las Vegas, which saw a 11.1 percent gain, and San Francisco, which saw a 10.2 percent gain.
In Seattle, this has meant a market in which buyers are increasingly forced to make compromises and adapt to heightened competition, said Danny Greco, a realtor at Keller Williams Greater Seattle.
“It might take three, four, five offers before we get a contract, so I’m seeing people get more aggressive on that first or second offer because they’re not sure if another option will be coming,” said Greco, who has been working in the Seattle real estate market for five years.
“And people are generally end up having to sacrifice something, maybe the particular neighborhood they wanted, or number of bedrooms,” he added.
One of Greco’s clients, Rachel Arteaga, recently bought a three-bedroom home in the Wedgwood neighborhood of northeast Seattle after looking for six months and, in the process, putting down five offers on homes she and her husband, Brandon, didn’t get.
“We knew it was going to be difficult, but it still really surprised me how aggressive other buyers were,” said Arteaga, 35, a higher education administrator. “The list price is nearly irrelevant, so you need to go far above it—that was something we picked up after putting down a few offers.”
Arteaga said a three-bedroom home was always their ideal, but added that two of the offers the couple put down were on two-bedroom homes, pointing to the tradeoffs buyers will make when looking.
Housing starts in February were lower than expected. High lumber costs and possibly higher steel prices as a result of President Trump’s tariffs make builders uncertain if they can build profitably, continuing the strain on prices.
Price growth may slow over the course of 2018 but continued price increases are expected in the nearer future, said Michael Englund, chief economist for Action Economics.
“We’re looking for a solid set of gains in the spring, which is normally the housing season,” Englund said. “I expect that growth to continue as we get into the warmer months.”
For now, effects of sustained price growth in the sector has created an environment where middle-income and first-time buyers are losing out.
“My clients aren’t the librarians or the first-year accountants making $50,000 a year,” Greco said. “It’s becoming increasingly dominated by tech people, people with money. People who can afford to keep up with this wave.”