Home values in 20 U.S. cities steadied in the year ended December, putting residential real estate on healthier footing to contribute to the economic expansion.
The S&P/Case-Shiller index of property values increased 5.7 percent from December 2014, the same as in the year ended November, the group said Tuesday in New York. The median projection of 27 economists surveyed by Bloomberg called for a 5.8 percent advance. Nationally, prices rose 5.4 percent year-over-year.
Steady gains in payrolls and historically low levels of jobless claims are probably making a home-purchase more attractive to many Americans, boosting demand and gradually pushing up prices in the process. Continued low interest rights and a bigger supply of properties that are affordable for first-time homebuyers will be needed to help extend the housing recovery.
“Ongoing recuperation in home prices is a sign that the U.S. recovery is continuing, despite the market volatility that is leading some to think otherwise,” said Dov Zigler, a financial markets economist at Scotiabank in New York, whose forecast for home prices was the closest in the Bloomberg survey. The steady pace of improvement “continues to chip away at the share of negative-equity mortgages in the U.S., which ultimately improves people’s abilities to move and find jobs, and increases the prospects for gains in home sales.”
Economists’ estimates in the Bloomberg survey for the 20-city gauge ranged from gains of 4.8 percent to 6.6 percent. The S&P/Case-Shiller index is based on a three-month average, which means the December figure was also influenced by transactions in November and October.
All 20 cities in the index showed a year-over-year increase, led by gains of 11.4 percent in Portland, Oregon. San Francisco and Denver rounded out the top three. Thirteen cities saw year-to-year prices climb at a faster rate than in November. Washington showed the smallest increase, at 1.7 percent.
The year-over-year gauge provides better indications of trends in prices, according to the S&P/Case-Shiller group. The panel includes Karl Case and Robert Shiller, the economists who created the index.
“While home prices continue to rise, the pace is slowing a bit,” David Blitzer, chairman of the index committee at S&P Dow Jones Indices, said in a statement. Continued home-price appreciation “should encourage further activity in new construction.”
On a monthly basis, home prices in the 20-city index adjusted for seasonal variations increased 0.8 percent in December after rising 1 percent the month before. The Bloomberg survey median called for a 0.9 percent gain.
Unadjusted, values were little changed after rising 0.1 percent in November.
The housing industry has gotten off to a slower start this year. New-home construction unexpectedly cooled in January as housing starts dropped 3.8 percent to a 1.1 million annualized rate, the weakest in three months.
Meanwhile confidence among homebuilders dropped in February to a nine-month low, according to the National Association of Home Builders/Wells Fargo builder sentiment index. The group’s gauge of buyer traffic dropped to 39 in February, the lowest since May, from 44 the prior month.
Steady labor-market improvement and signs of faster wage growth should help buttress the industry in the months ahead. At 4.9 percent, the unemployment rate fell to an eight-year low in January while average hourly earnings rose more than estimated after climbing in the year to December by the most since July 2009.
Fed policy makers will likely keep an eye on housing-market progress as they weigh whether the economy is strong enough to handle additional interest-rate increases. Their next opportunity comes next month.