With housing on a steady path to recovery, home prices have risen approximately 20 percent in the last three years according to the Federal Housing Finance Agency (FHFA) and Standards & Poor’s (S&P) Case-Shiller house price indices. Both consumers and industry professional expect that upward trajectory to continue this year.

The anticipated increase is the result of intersecting economic indicators- macro-level factors painting the big picture that is today’s housing market.

So, what is impacting prices these days?

  1. Wages and Inflation– As much as the economy’s improved, a recent RealtyTrac analysis illustrates disconnect between house price growth and wage growth. Between 2012 and 2014, home prices increased 17%; wages, in contrast, increased by 1.3%- a 13-1 disparity.

Inflation rates as they stand likely affect home prices indirectly, argues renowned economist and Nobel Laureate Robert Shiller. Because pay increases often boost perceptions of buying power, inflation may have a greater impact on consumer confidence, which, in turn, could ignite housing activity.

  1. Interest Rates and Inventory– Inflation rates, however, do end to influence interest rates. While its’ reasonable to assume rising mortgage interest rates equal falling house prices, in truth, there’s little evidence of a causal relationship between the two. In fact, higher mortgage rates have a tendency to predicate a decrease in purchases, rather than a dip in prices, concludes Mark Palim, Fannie Mae Vice President, Economic & Strategic Research Group.   http://www.fanniemae.com/portal/about-us/media/commentary/062314-palim.html

That said, interest rates do play a role in overall affordability. In many markets, today’s rates have significantly propelled demand.

  1. Demographics– In addition, generational shifts have historically affected demand and moved prices in the housing market. Currently making waves are baby boomers and millennials, though many of the latter have been priced our due to statistically lower incomes and sluggish wage growth. International interest can also drive home prices, particularly in luxury markets.
  1. Oil Prices-Another distinct market trend could also affect home prices in the near future. Following the decline in oil prices, markets with oil economies, such as Texas, Louisiana and Oklahoma, may see home prices drop at the end of this year and into 2016 Trulia reports. Conversely, non-oil-producing markets, particularly in the Northeast and Midwest, may see a boost in prices. These findings mirror oil and home price fluctuation since the 1980’s.   http://www.trulia.com/trends/2015/01/trulia-price-rent-monitor-dec-2014/

While there are many more variables factoring into the equation, house prices remain subject to these predominant large-scale influencers.