November US home prices as measured by the Case-Shiller 20-City index posted a 0.9%MoM gain (sa), down from 1.1% in October. Prices are now 13.7% higher than a year ago. Prices are holding up quite well, despite the fact that other indicators are pointing towards a slowdown. Mortgage rates went up quickly after Fed-chairman Bernanke first pondered tapering in May 2013. Sales went down with a lag after the Summer. Tight supply explains why prices remain firm despite that. The inventory of homes for sale is 5.1 months’ worth of supply, which is still comfortably below the long-term average of around 7 months.
We do expect price increases to decelerate in the coming months. With fixed mortgage rates up to 100bp higher than a year ago, demand-induced upward pressure on prices should soon diminish. That said, tight supply should ensure that the deceleration of price increases should be gentle.
Recent housing market data may have been soft, but today’s home price data confirm that the housing market provides no reason for the Fed to get cold feet about further tapering.