U.S. house prices rise at soft pace, housing activity likely to plateau in 2019

House prices in the U.S. rose at a soft pace. The latest estimates indicate that the house prices recorded a modest rise in July. The 20-city composite from S&P/Case-Shiller recorded a seasonally adjusted rise of only 0.02 percent sequentially and 2 percent year-on-year, following a 0.06 percent sequential rise in June.

The monthly rise came in below consensus expectations of a rise of 0.2 percent. At current levels house prices are rising at their slowest annual rate since 2012, when the housing market was still rebounding from the overhang of the crisis. Meanwhile, the monthly purchase-only price index from the FHFA, which rose at a stronger rate of 0.4 percent sequentially and 5 percent year-on-year in July.

Home price appreciation has decelerated steadily since the start of 2018. This is a part of a wider weakening in the housing market that is also evident in residential investment and home sales, noted Barclays in a research report.

“Our expectation is that housing activity will plateau in 2019, rather than deteriorate further. This reflects our view that home affordability should improve for most households, with accelerating wages and tight labor markets supporting further improvements in household income that outpace house price gains”, stated Barclays.

This rebound should be strengthened by mortgage interest rates, which have dropped sharply this year with expectation of Fed easing. Nevertheless, with a limited supply of new units coming onto the market, supply and demand for housing seems to be finely matched, which lowers the possibility of a sharp correction in home prices.