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AEI: Rumors of a housing slowdown are premature

The U.S. housing market was still deep into a sellers’ market near the end of last year, with prices still rising fast for entry-level homes, according to the latest tracking data from the American Enterprise Institute (AEI).

Prices for homes in the lower price tier, representing 27 percent of the market, appreciated at a pace of 6.6 percent in the 12 months through November, the think tank reported this week.

aeihomepriceBy contrast, home prices rose over the same period by just 1.7 percent in the highest-price tier.

AEI’s Center on Housing Markets and Finance tracks prices changes in four price tiers in 73 metros based on loan data. On a nationwide basis for all tiers, home prices rose at an annual pace of 5 percent, which was down from the 7.4 percent annual gain in November 2017. 

“Headlines continue to raise concern about the health of the housing market,” said the center’s co-director, Ed Pinto. “We believe that rumors of the end of housing boom 2.0 are greatly exaggerated.”

During a presentation Monday, Pinto said that home-price growth has slowed in all four price tiers, but a substantial cooling off in that appreciation was still only happening in the uppermost price tier, comprised of homes priced above Fannie Mae and Freddie Mac’s loan limits. In the lowest-price tier, home prices were still rising in November, whereas they had plateaued in the higher-price tiers.

In 15 of 73 metros, home prices in the low-price tier were still rising at an annual pace of 9 percent or more, AEI reported. Also, he said, in some metros prices, such as Las Vegas, home prices have accelerated across all price tiers.

AEI tends to support a market-based mortgage system favored by conservatives and has been critical of loosening lending standards by federal agencies, particularly at the Federal Housing Administration.

AEI analysts assert that increasingly looser lending in programs aimed at first-time homebuyers has effectively juiced the demand for lower-end properties, where for-sale inventories are especially tight. This has driven up the prices at the lower end.

The supply of lower-end homes was still ultra-tight in November at less than three-months supply.  

AEI also estimated that there were 6.3 million home sales in the four quarters through September 2018, which was up 1.8 percent compared to the same period in 2017. Sales were down 0.6 percent year over year in November, however. 


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