The Index’s 10-city composite rose 4.9 percent for the year, while the 20-city composite increased 5.7 percent. Both numbers were down slightly from March’s numbers, which came in at annualized growth rates of 5.6 percent and 5.9 percent, respectively.
Still, despite the slight slowing of growth, home prices are steadily climbing—and have been for some time. And according to David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices, the continuing rise in prices raises concerns of another housing crisis.
“As home prices continue rising faster than inflation, two questions are being asked: why? And, could this be a bubble?” Blitzer said. “Since demand is exceeding supply and financing is available, there is nothing right now to keep prices from going up.”
Increasing demand—and inventories that just can’t keep up—are also of concern, Blitzer said.
“The increase in real, or inflation-adjusted, home prices in the last three years shows that demand is rising,” he said. “At the same time, the supply of homes for sale has barely kept pace with demand and the inventory of new or existing homes for sale shrunk down to only a four-month supply. Adding to price pressures, mortgage rates remain close to 4 percent and affordability is not a significant issue.”
Ultimately though, Blitzer thinks we don’t need to worry about another crash—at least not yet.
“The question is not if home prices can climb without any limit; they can’t. Rather, will home price gains gently slow or will they crash and take the economy down with them?” Blitzer said. “For the moment, conditions appear favorable for avoiding a crash. Housing starts are trending higher, and rising prices may encourage some homeowners to sell. Moreover, mortgage default rates are low and household debt levels are manageable.”
Broken down by city, Seattle, Portland, and Dallas experienced the biggest jumps in home prices over the year, with 12.9 percent, 9.3 percent, and 8.4 percent increases, respectively.
Lenders are continuing to loosen up their credit standards—and they plan to keep on doing it as the year goes on, according to the Q2 2017 Mortgage Lender Sentiment Survey released by Fannie Maeon Monday. In fact, the share of lenders who say they plan to ease credit standards on GSE, non-GSE, and government loans over the next three month has hit its highest point since the survey’s inception.
Overall, the share of lenders who say they have eased credit standards has risen steadily since Q4 of last year. But this uptick in looser credit standards is no surprise, especially given the number of lenders who reported declining purchase activity this quarter.
“Across the three loan types, the share of lenders who reported growth in purchase mortgage demand dropped to the lowest net reading in years for the second-quarter period,” Fannie Mae reported. “The drop in purchase mortgage demand also reflects the latest findings in the Fannie Mae National Housing Survey, in which the net share of consumers who reported that now is a good time to buy a home dropped to a record low. The results of both surveys mirror the ongoing narrative for housing: Tight inventory has pushed up home prices, which is weighing on affordability and constraining sales.”
According to Doug Duncan, SVP and Chief Economist at Fannie Mae, lenders are concerned about being outpaced by their competitors.
“Expectations to ease credit standards climbed to survey high points in the second quarter as more lenders reported slowing mortgage demand and increasing concerns about competition from other lenders,” Duncan said. “Easing credit standards might also be due, in part, to increased pressure to compete for declining mortgage volume. For the third consecutive quarter, the share of lenders expecting a decrease in profit margin over the next three months exceeded the share with a positive profit margin outlook. For the former, the percentage citing competition from other lenders as a reason for their negative outlook reached a survey high.”
Fewer compliance concerns, increased GSE support, and greater clarity on warranties and underwriting tools have also allowed lenders to loosen up on credit standards, Duncan said.
Fannie Mae conducts its Mortgage Lender Sentiment Survey on a quarterly basis. To see the full results of Q2’s survey, visit FannieMae.com.