Standard & Poors will release its monthly Case-Shiller report Tuesday, which surveys existing single-family home prices. The report, which lags by two months, will cover housing market data from this past February. Over the past several months, this report has shown home prices rising continually across the country, and the February survey is expected to be an extension of that trend. Here are five things to look for when the data is released at 9:00 EDT.
1. Price growth will continue
The median economist estimates for this month’s report—a 6.35 percent year-over-year rise—are in line with the annual home price increases recorded in recent months. In January, home prices saw a 6.2 percent rise when compared to January 2017, and in December this number was 6.3 percent.
“I expect the numbers to show the same firmness in prices in line with the price gains we’ve already seen,” said Michael Englund, chief economist for Action Economics.
This continued pace will further a housing environment in which prospective buyers in many cities are squeezed as prices rise faster than incomes. Home prices nationally have been rising three times faster than the rate of inflation, and suggest affordability issues could weaken demand in the future.
2. Still a supply issue
As has been the case now for several months, there are still just not enough homes on the market. This has resulted in an increasingly competitive environment in many major cities, in which sellers reap benefits while buyers generally have to make compromises in order to land a home.
These supply issues are partly due to new construction that hasn’t kept pace with rising demand. While the monthly housing starts report released earlier this month showed stronger gains than expected, single-family construction was still weak.
“The supply story in the housing market has been the dominant driver behind all the data,” said Thomas Simons, senior economist at Jefferies, an investment firm. “It restricts the pace of sales because there just aren’t that many home available for sale, and it drives prices steadily higher.”
3. Worsening affordability
As prices continue to rise, strains on housing affordability could worsen and work to weaken demand. These pressures, combined with rising mortgage rates—which make buying a home more expensive—have the potential to drive home prices back down in the coming months as fewer people look to buy.
Earlier this month, mortgage rates reached their highest point so far this year, and increases are expected to continue as the Federal Reserve plans to raise interest rates three times in 2018. It’s unlikely that the impact of this will come through in the February data, but affordability pressures are something to keep in mind as price gains continue.
“As we move through the year, you’re going to have higher mortgage rates, and we still have slow growth in median incomes, and so home affordability is going to be a problem,” said Robert Brusca, chief economist at Fact & Opinion Economics, a Manhattan-based consulting firm. “Typically if home affordability falls, the pace of home price changes goes down.”
4. What about the tax bill?
Though there’s been a lot of buzz on the effects of the recent tax plan on housing issues—particularly on homeownership in wealthier parts of the country—it’s unlikely for any effects of this to be apparent in home prices data just yet.
Property tax changes under this plan that de-incentivize homeownership in high-tax states could eventually weaken demand and lead to lower prices, but data from February is too early to see any substantial impacts of that.
“The data is behind the curve in terms of keeping up with these events that we’re worried about,” Brusca said. “We need to see at least two or three or maybe four more months of data before we have any idea what those effects are.”
5. Not spring yet, but it may as well be
February is a less active month for the housing market when compared to warmer parts of the year, but the report will likely continue to show substantial price increases despite that.
“February is a month where housing activity is generally pretty light, it’s generally kind of muted over the winter. The spring selling season is always when activity picks up,” Simons said. “But we’re still expecting that constraints on supply will push price gains to continue.”