In December, a measure of U.S. housing prices in 20 cities rose at the fastest pace since April 2014, boosted by record low mortgage rates and housing inventory. On a YoY basis, the S&P CoreLogic Case-Shiller index (20-City Composite) increased more than expected, rising 10.10 percent in December (up from 9.20 percent in November). Looking at the details, Phoenix, San Diego and Seattle posted the biggest gains in prices.
This trend has been confirmed by other indexes. As a matter of fact, the CoreLogic House Price Index for December grew by 9.24% YoY (up from 8.18% YoY in November). It was the fastest increase since February 2014. In addition, the FHFA (Federal Housing Finance Agency) purchase-only price index rose 11.4 percent YoY in December (the largest increase on record and up from 11.0 YoY percent in November).
According to my proxies, U.S. housing prices will keep strenghtening in the short term amid strong fundamentals:
→ Buyers keep on benefiting from favorable market conditions with mortgage rates still close to record low.
→ Mobility will improve as more states are expected to ease restrictions in the coming months due to better health situation
→ Demand for second homes has been strong amid pandemic
→ President Joe Biden extended the foreclosure moratorium and mortgage forbearance through the end of June, which would therefore limit inventory and downward prices pressure
→ Housing supply remains constrained, hitting another record low in January
Focusing on monetary policy, investors will keep an eye on real estate given that a constant spike of housing prices (by more than 10% YoY) will probably take place in Q1 2021 and could push policymakers to think about tapering MBS purchases sooner than expected.