US Housing Price Index Grows by 0.2%

A 0.2% rise in the US housing price index has been reported by the US Federal Housing Finance Agency for June after a 0.2% gain for May, the report was marginally lower than analysts’ expectations of 0.3%. Prices have also increased by 1.2% to reach a 5.6% rise from the second quarter of 2015 to the second quarter of 2016. The report has also shown a dampening in the rate of price growth resulting from affordability issues.

There was also a 0.4% monthly slump in prices for the New England Division with 4 divisions recording lower prices. Four divisions reported a monthly growth led by the Mountain division, as prices remained the same in West North Central. All divisions showed increased prices through the year with their weakest reading at 1.8% in New England and their strongest reading at 8.6% in the mountain region. A growth of 10.7% was reported by Oregon, this was the strongest state increase.

The following divisions saw prices increase less than 1% quarter-over-quarter. Prices in the New England division went up 0.9% over the past quarter, West North Central (up 0.9%), East North Central (up 0.8%) and Middle Atlantic (up 0.6%).

Quarter-over-quarter, the Pacific division region came in second with a quarterly gain of 1.5%, followed by the South Atlantic (up 1.3%), West South Central (up 1.3%), and East South Central (up 1.0%). In terms of seasonal adjustments, the US (purchase only) house price index now sits at 230.98 for the second quarter of 2016, with the January 1991 rate of 100 used as a benchmark.

Over the past few months, the housing sector has posted a very solid performance with a remarkably strong reading for July new-home sales at a fresh 8 year high. There has also been a growing sign of affordability issues which also appeared to be a feature in the house-prices data with a major slowing in the rate of monthly growth this year. The last 3 months have posted 0.2% monthly growth compared with the 0.5% in the previous 5 months.

“Although the appreciation rate for the second quarter was of similar magnitude to what we’ve been seeing for several years now, a close look at the month-over-month price changes during the quarter reveals a potentially significant market shift,” said FHFA Supervisory Economist Andrew Leventis, in a statement. "Our monthly price index indicates that in each of the three months of the quarter, the increase was only 0.2%. This is a much more modest pace of appreciation than we’ve seen in some time and most likely reflects accumulated pressures from significantly reduced home affordability."

Market reaction was limited with the dollar falling marginally lower as the EUR/USD fell to 1.1265 from 1.1260. Treasuries were also affected as they moved slightly into positive territory as 10-year yields moved below 1.55% and equity futures were mildly affected.