Just when it looked like home prices may have hit a ceiling, low interest rates could give them another boost.
A new report from real-estate data firm CoreLogic CLGX, -0.74% suggests that annual home-price growth will increase by 5.4% by July 2020. That would represent a shift from what has happened over much of 2019.
The S&P CoreLogic Case-Shiller index for home prices, a widely-cited barometer for the national housing market, registered the slowest pace of home-price growth since 2012 in June of 2.1%. A year earlier, home prices were rising at an annual rate of 6.3%.
Some major housing markets, such as New York, Miami and Seattle, actually experienced a decline in home prices either on a monthly or annual basis, per the Case-Shiller index. In recent months, home-price growth had become weaker as would-be buyers were priced out of these and other markets.
CoreLogic’s Home Price Index was less pessimistic, registering a 3.6% uptick year-over-year in July. Like Case-Shiller, the report noted some parts of the country where prices had fallen, namely Connecticut and South Dakota.
But recent home sales data provides a silver lining for the housing market. Sales activity has picked up — albeit modestly — as consumers sought to take advantage of the low mortgage rates available currently.
Mortgage rates have fallen throughout much of 2019. Loan rates generally track the path of the 10-year Treasury note TMUBMUSD10Y, +1.73%. Treasury yields have fallen in recent months amid compounding concerns related to trade tensions and the state of the global economy.
“With the for-sale inventory remaining low in many markets, the pick-up in buying has nudged price growth up,” Frank Nothaft, chief economist at CoreLogic, said in the report. “If low interest rates and rising income continue, then we expect home-price growth will strengthen over the coming year.”
How much room home prices have to grow remains an open question. CoreLogic estimated that the real-estate markets in nearly one in four metropolitan areas were undervalued. CoreLogic defines an undervalued market as one where home prices are at least 10% below what it determines to be the sustainable level where supply and demand are balanced.
Meanwhile, 40% of markets were at value, according to CoreLogic. That means roughly a third of markets nationwide are overvalued — and that could mean that price growth could slow or prices could fall if enough buyers are priced out of the market again.