Home-price growth continued to accelerate in March, posing a challenge to the market, which already has seen the pace of sales slow because of rising prices and a shortage of inventory.
The S&P CoreLogic Case-Shiller Indices, which covers the entire nation, rose 5.8% in the 12 months ended in March, up from a revised 5.7% year-over-year increase reported in February.
Home prices hit a record in September, and the pace of growth has accelerated since then. The national price-growth number hit a 33-month high in March.
The 10-city index gained 5.2% over the year, and the 20-city index gained 5.9%, both unchanged from February. That slightly beat the expectations of economists surveyed by The Wall Street Journal, who expected the 20-city index to rise 5.8% in March.
The accelerating gains are being driven by growing demand thanks to rising wages and a large demographic of people entering their 30s and looking to buy homes, as well as limited supply. Economists said they are concerned, however, that price growth that continues to outpace income growth isn’t sustainable.
“While prices cannot rise indefinitely, there is no way to tell when rising prices and mortgage rates will force a slowdown in housing,” said David Blitzer, managing director at S&P Dow Jones Indices.
The strong growth in prices also poses a challenge for first-time buyers trying to get into the market this year.
Still, home-price growth remains less than half of what it was during the housing bubble in the mid-2000s. Then prices grew by more than 14% for much of 2005.
Economists are concerned, however, about a handful of markets that have been seeing double-digit or near-double-digit growth. Seattle led the way in March with a 12.3% home-price increase, and Portland reported a 9.2% year-over-year gain. Dallas, which recently replaced Denver in the top three, reported a 8.6% annual increase in home prices.
Month over month, the U.S. Index rose 0.8% in March before seasonal adjustment, while the 10-city rose 0.9% and the 20-city index increased 1% from February to March.
After seasonal adjustment, the national index rose 0.3% month over month, and the 10-city and 20-city indexes rose 0.9%. After seasonal adjustment, 17 of 20 cities saw prices rise.
Overall the housing market is gaining strength, but there are signs price growth is starting to take a toll on buyer demand.
The pace of sales of existing homes fell 2.3% in April, as buyer frustration mounted over rising prices and a lack of homes for sale, the National Association of Realtors said last week. New home sales dropped 10.4% last month due to similar challenges, according to the Commerce Department.