U.S. home prices increased 0.8% on an adjusted basis in October compared with September and increased 4.9% compared with October 2014, according to the S&P/Case-Shiller home price index.
On an unadjusted basis, home prices nationwide were up 0.2% compared with September.
Month over month, the index's 10-city and 20-city composites each saw a gain of 0.6% on an adjusted basis. Year over year, the 10-city composite saw a gain of 5.0%, while the 20-city composite saw a gain of 4.7%.
Fifteen of 20 cities reported increases in September before seasonal adjustment. After seasonal adjustment, 19 cities increased for the month, according to the report.
San Francisco, Denver and Portland, Ore., saw the most appreciation in October, with year-over-year increases of 11.2%, 10.9% and 10.1%, respectively.
‘Home prices and housing continue to show strength, with home prices rising at more than double the rate of inflation,’ says David M. Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices, in a statement. ‘The general economy appeared to slow slightly earlier in the fall, but is now showing renewed strength. With unemployment at five percent and hints of higher inflation in the consumer price index, most analysts expect the Federal Reserve to raise its Fed Funds target range to 25 to 50 basis points – the first increase since 2006.
‘While this will make news, it is not likely to push mortgage rates far above the recent level of four percent on 30-year conventional loans,’ Blitzer adds. ‘In the last year, mortgage rates have moved in a narrow range as home prices have risen; it will take much more from the Fed to slow home price gains.’
With regard to whether the recent home price gains are indicative of a bubble, Blitzer points out that the circumstances of today's housing market are much different compared with 2008. In particular, he notes that currently, there isn't a huge spread between rents and home purchase prices. Furthermore, he notes that home prices are currently much more volatile when compared with rents. These two factors alone call into question whether a bubble is really forming – and further, whether that bubble, if there is one, will burst any time soon.
‘Another question raised by consistent real (or inflation-adjusted) home price increases is whether the prices are squeezing people out of the market,’ Blitzer adds. ‘One measure of affordability is based on median income, median home price and mortgage rate.’
The report includes a chart showing that a home buyer at the median income can afford the median-price home.
‘As shown on the chart, affordability is more than adequate for a median-income buyer now but has slipped a bit recently,’ Blitzer says.