US house price index rises in June, rate of growth slows on reasons of affordability

The United States Federal Housing Finance Agency (FHFA) house prices index rose during the month of July, although slightly less than what markets had earlier expected. However, the rate of growth is expected is slow in the near future on reasons of unaffordability.

The US FHFA house prices index rose 0.2 percent in June after a 0.2 percent gain for May and slightly weaker than the 0.3 percent expected. Further, there was a 1.2 percent increase in prices for the second quarter to give a 5.6 percent gain from the second quarter of 2015, but the overall evidence suggests the rate of price increases is slowing due to affordability issues.

On a monthly basis, there was a 0.4 percent decline in prices for the New England Division with four Divisions recording lower prices. Four Divisions recorded a monthly gain led by the Mountain Division, while prices were unchanged in West North Central.

Moreover, all divisions reported increased prices over the year with the weakest reading at 1.8 percent in New England and the strongest gain at 8.6 percent in the Mountain region. The strongest state increase was Oregon with a growth of 10.7 percent over the year.

There has, however, been increasing evidence of affordability issues and this also appears to be a feature in the house prices data with a significant slowdown in the rate of monthly gains this year. The last three months have recorded 0.2 percent monthly gains compared with 0.5 percent in the previous five months.

Meanwhile, market reaction was limited with the dollar marginally weaker as EUR/USD moved to 1.1265 from 1.1260. Treasuries were slightly in positive territory as 10-year yields dipped below 1.55 percent and equity futures little changed.