The S&P CoreLogic Case-Shiller Indices are the leading measures of U.S. home prices. Here are five things to watch for in this month’s report which will reflect February’s housing market.

FRED’s S&P/Case-Shiller 20-City-Composite Home Price Index.

1. Slower appreciation.

The prevailing trend has been slower growth every month. In December 2018 the 20-City-Composite posted a 4.2% year-over-year gain, down from 4.6% in November. January’s number was reported to be a 3.6% annual gain, down from 4.1% in the previous month. Most economists are expecting to see the trend continue with a lower number around 3% for February citing that numbers are usually flat in February and March.

A lower number signals a recovering housing market where prices are correcting following the rise after the housing crisis. If that number moves up it would be a surprising sign signaling an early end to the recovery period. A lower number means one can expect to see a modest slowing of prices.  

2. Some pre-crisis recovery.

The 2006 housing crisis was the phenomenon of increasing rapidly then collapsing. Some things to look out for in this month’s report are areas where homeowners may be recovering the pre-crisis value of their homes. Last month’s 20-City-Composite index level was 212.41 which is higher than the 2006 peak of 206.52. Areas like Dallas and San Francisco are well above their pre-crisis index level by over 100 points. The homeowners in these areas are surely feeling good to see their property value increase. However, this recovery does signal that it will become more difficult to enter the market. Even in areas like Las Vegas and Phoenix where the index is farthest below the 2006 peak, prices are increasing rapidly.

3. Mortgage rates and wage gains.

A factor that’s just as big a concern as the home price for many buyers is the mortgage rate.

In the analysis of last month’s report David M. Blitzer, managing director and chairman of the Index Committee at S&P Dow Jones Indices said this, “Mortgage rates are as important as prices for many home buyers. Mortgage rates climbed from 3.95% in January 2018 to a peak of 4.95% in November 2018. Since then, rates have dropped to 4.28% as of mid-March.”

If housing rates continue to drop it’ll be advantageous for many potential buyers to take advantage. An increase would be a damaging blow to eager potential homeowners. Charlie Dougherty, an economist for Wells Fargo Securities, points out the increase in mortgage applications following the rate decrease in the latter half of 2018. However, with some economists forecasting gains dropping to 3% — one may see home gains on par with, if not lower than wage gains, meaning some people could catch up on the distance between their income and the potential cost of a house.

4. How coastal cities are performing?

Coastal cities like San Francisco, San Diego, New York, and Seattle all have high index levels and have been the jewel of many home-buyers. The growing industries and desire to be in these locations have made these cities highly demanded metropolitan hubs for city culture. However, this may be a trend that some people are over as the index levels for up and coming hubs like Dallas and Denver have risen. The growth of these areas could start to show early signs of a cultural shift toward emerging demand for these cities. Coastal cities cooling off may be the change that will curb the high demand for these cities that have seen increases despite an increase in housing inventory. Although it’s not of any major significance if the coastal areas show a slight cool or warm up a bit.

5. Are we at the tail end of the recovery or the beginning?

In recent months, there have been signs of a healthy and recovering housing market. With some cities nearing or above the pre-crisis level the question that remains is how much longer the recovery period will last.

Toward the second half of 2018 the housing market really slowed down at the time when there were higher mortgage rates, but now mortgage rates are going down.

Case-Shiller has shown to be a large boat that has no sudden or dramatic ups and downs, so if gains decrease further as many economists expect then the thing to look for will be signs that the recovery period is getting nearer.

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