Largest Semi-Annual Increase In Home Prices On Record

Includes: ITB, IYR, KME, REZ, XHB
by: David I. Templeton, CFA

This morning, the Mortgage Bankers Association reported mortgage application activity fell 13.5% (includes purchase and refinance activity) for the week ended Sept. 6, with the refinancing index declining 20.2%. The rapid spike in mortgage interest rates has certainly played a significant part in the slowdown in mortgage activity. One follow-on question is whether the improvement seen in real estate prices is sustainable in the face of these higher mortgage rates and the anticipated tapering by the Fed. A recent report from Chart of the Day highlights the sharp increase in median home prices, as noted below:

The U.S. real estate market continues to surge. For some perspective, today's top chart illustrates the U.S. median price (adjusted for inflation) of a single-family home over the past 43 years while today's bottom chart presents the semi-annual percent change in home prices (also adjusted for inflation). Today's chart illustrates that the inflation-adjusted median home price has rarely increased more than 10% in six months (gray shading). When inflation-adjusted home prices did increase more than 10% in six months, it was often soon followed by a period of stagnant or declining prices. It is worth noting that over the past six months, the median price for a single-family home has shot up at the fastest pace on record.

From The Blog of HORAN Capital Advisors.