Sep 2 2005
Strong demand for housing and constraints on its supply propelled single-family house prices in this year’s second quarter to an annual rate of appreciation of 12.8 percent, according to the House Price Index released today by the Office of Federal Housing Enterprise Oversight (OFHEO). House prices were up by 13.43 percent on a year-over-year basis, the largest four-quarter increase in more than 25 years.
“The most rapid increases in home prices have been occurring in markets where demand is particularly strong and supply constraints are especially difficult because of a shortage of land and excessive growth controls or moratoria,” said NAHB Chief Economist David Seiders.
“While the fundamentals for housing will remain relatively strong over the coming period, we believe that these numbers are unsustainable and that rates of house price appreciation will gradually head back into their historic range,” Seiders added.
Citing findings from the most recent NAHB/Wells Fargo Housing Opportunity Index for the second quarter of 2005, Seiders said that there is already good evidence that the eroding affordability of housing in hot markets in California and other parts of the country will be taking some of the steam out of sales activity before long.
As the growing U.S. economy continues to generate new jobs and healthy gains in household income, Seiders predicted that the housing price boom will start “quietly winding down, and this should help restore a healthier balance between supply and demand in local markets.”
“A recent Federal Deposit Insurance Corporation study shows that house price booms lead to price busts only when local economies stumble for other reasons, such as a national recession,” he said. “With the U.S. economy in the midst of a strong expansion, those risks are quite low for the foreseeable future.”
In the meantime, he noted, the rapid run-up in housing values has increased the wealth of the 70 percent of American households who own their own homes, helping to buffer them from the impact of the rising energy prices that have become especially acute this week following the disruptive impact of Hurricane Katrina.