Home prices are a pure function of the interaction of supply and demand. Strong job growth, rising wages (the average hourly wage in the U.S. is up 2.6 percent in the prior 12-months), rising rents and lack of supply is propelling prices upwards in most markets.
In the latest 12-months the U.S. added 2.281 million net new jobs but issued just 1.160 million new residential building dwelling units (from apartments to mansions). This works out to 1.97 net new jobs per new dwelling unit. Housing is typically in equilibrium when there are from 1.25 to 1.5 net new jobs per new dwelling unit, so the U.S. continues to under build the housing market.
Each quarter the National Association of Realtors® (NAR) releases median home prices for Metropolitan Statistical Areas (MSAs). For the quarter ending Q1 2018, home prices continued posting strong gains in many of the MSAs. For the United States the median price for Q1 2018 was up 5.73 percent when compared to Q1 2017.
Rather than using just one quarter of data, another approach is to view median prices on a trailing 12-months (TTM) basis (percent change in median price averaged from Q2 2017 to Q1 2018 versus Q2 2016 to Q1 2017). From a TTM basis, median prices rose 5.67 percent. I prefer the TTM calculation since it buffers the potential noise of just one quarter of data.
For a longer term examination, the latest TTM was compared to the TTM average of the medians from five years ago. In the past five years, U.S. median prices rose 39.5 percent total — an annual compound rate of 6.88 percent.
Out of the 165 MSAs having data for these periods, none had a negative home price change when comparing the five year annual compound growth rate, and just 13 were less than zero comparing Q1 2018 to Q1 2017.
The following table shows the 10 best performing markets based comparing the latest TTM to a year ago, plus the U.S.
As always, for every winner there is a loser. Once again I invoke the TINSTAANREM axiom — There Is No Such Thing As A National Real Estate Market. The market for housing is local. The following table includes all 13 MSAs that had a negative TTM year-over-year change in median prices.
The next table shows the top compound annual growth rate in median prices in the past 5 years, using a TTM basis and includes all of the MSAs that had a double digit increases.
Click here for a PDF covering 165 MSAs and related metrics. While NAR tracks more than these MSAs, the ones not included had missing data.
NAR is forecasting continuing price increases, up another 4.0 percent in 2018. The anticipated price increase along with rising interest rates should create a sense of urgency for prospective homebuyers.