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Housing prices are increasing at a slower rate than previous years, there hasn’t been much activity in the housing market since 2012 and rates are decreasing as the market recovers at a crawling pace.

Tuesday, the S&P’s Case-Shiller 20-City Composite posted a 4.2% year-over-year gain, down from 4.6% in November and 6.3% in 2017. Nationally, the S&P National Index has fallen to 4.7% in December, down from 5.1% in November and down from 6.3% in 2017.

Overall, the public’s perception of real estate is down, home prices are appreciating faster than inflation and there isn’t much incentive to buy. The market is recovering from a sharp downturn — price increases and new tax laws are discouraging some homeowners from buying a second or third home or even moving to a larger home; while millennials are starting to gain interest in the market.

Trump’s new tax laws are capping state and local tax deductions. This is disproportionally affecting the two coasts, New York prices are up only .06% from November to December and Los Angeles even less at .02% while a majority of the states saw prices decrease. Currently, the cities with the fastest price increases are Las Vegas and Phoenix.

“These are a reminder of how prices rose and collapsed in the financial crisis 12 years ago,” says David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices.

While the housing market has grown, it’s growth has not been to the same extent as previous business cycles. Las Vegas and Phoenix prices are the furthest below their 2006 peaks of the cities in the S&P CoreLogic Case-Shiller Indices, a reminder that the housing market is still recovering.

However, millennials may be the exemption because of their increasing demand for houses.

There is a fair amount of pent-up demand in the real estate market as many millennials have not purchased homes due to cultural shifts and other behavioral factors; these groups are aging, starting family units, and entering more secure jobs. Much of the population that didn’t feel a need to buy a home are now feeling the demand according to Michael Englund, the Principal Director and Chief Economist at Action Economics, LLC.

“There has been a massive drop in new home median price because we’re shifting dramatically to producing low-end homes,” said Englund. However, this may not be enough to give the market the boost it needs. Assuming the housing market is essentially flat in 2019 Englund looks to see house price gains to slow to the two to three percent area by the end of 2019.

“Even at the reduced pace of 4.7% per year, home prices continue to outpace wage gains of 3.5% to 4% and inflation of about 2%. A decline in interest rates in the fourth quarter was not enough to offset the impact of rising prices on home sales,” says Blitzer.

The monthly number of existing single-family homes sold dropped throughout 2018, more affordable housing constructions targeted to millennials may be the driving factor in home sales as 2019 continues and house prices continue to cool and buyer’s sensitivity to price increases.

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