Remember how yesterday we told you the real estate market was distressingly tight because of low supply and high prices? Well, another report, released today, is yet more evidence of that trend: The Case-Schiller Index of housing in 20 cities said home prices rose a whopping 4.5% in 2014—double the overall rate of inflation.
In San Francisco and Miami, the price increases were even more phenomenal: 9.3% and 8.4% respectively. If you were selling there, or in most of the other 20 cities studied (such as Denver, Cleveland, and Seattle), you probably made a killing. But it’s not great news for the real estate market as a whole, David M. Blitzer, managing director and chairman of the Index Committee at S&P Dow Jones Indices, said in a press release.
“The housing recovery is faltering,” Blitzer said. “While prices and sales of existing homes are close to normal, construction and new-home sales remain weak. Before the current business cycle, any time housing starts were at their current level of about one million at annual rates, the economy was in a recession. The softness in housing is despite favorable conditions elsewhere in the economy: strong job growth, a declining unemployment rate, continued low interest rates, and positive consumer confidence.”
The Case-Schiller data, said realtor.com chief economist Jonathan Smoke, “tracks how we’ve seen existing-home prices perform in the fall, but since then we’ve seen price acceleration in both existing-home sale prices and list prices, so I would expect Case-Shiller numbers to accelerate from where they were in 2014 for at least the next three months.”
The reason for this acceleration, Smoke said, is economics 101: tight supply and growing demand. “We hope this signals would-be sellers to put their homes on the market and for builders to increase production,” Smoke added, “as the only way to see more moderate price increases is to have supply more in line with demand. New- and existing-home supply remain well beneath the levels that would signal a market in equilibrium.”