E Economics

Housing Prices Skyrocketed In March, Increasing Pressure For Fed Tapering

25 May, 2021
30-Year Mortgage Rate

In March, housing prices growth accelerated, rising at the fastest pace since at least 2013. The trend is likely to remain strong in the coming months raising pressure on Fed to taper MBS purchases in the second half of the year.

Housing Prices Growth Kept Accelerating In March…

In March, a measure of housing prices in 20 cities rose at the fastest pace since December 2013, boosted by low mortgage rates and limited inventory. As I expected, on a YoY basis, the S&P CoreLogic Case-Shiller index (20-City Composite) surprised upward and rose 13.27% in March (up from 12.0% in February). In the meantime, the S&P CoreLogic Case-Shiller index of national property values climbed 13.19% YoY, the biggest jump since December 2005. The increase followed a 12.04% gain in February.

This trend was confirmed by other indexes. As a matter of fact, the CoreLogic House Price Index for March grew by 11.27% YoY (up from 10.28% YoY in February). It was the fastest increase since March 2006. In addition, the FHFA (Federal Housing Finance Agency) purchase-only price index rose 13.9% YoY in March (the largest increase on record and up from 12.4% YoY percent in February).


… Raising Pressure On Fed To Taper MBS Purchases In H2

Even though housing prices growth will slow this summer (due to unfavourable base effects, a rebound in inventory and the end of foreclosure moratorium and mortgage forbearance), the trend should remain robust. In this context, I think that the debate concerning MBS purchases from the Fed will gain traction in the coming months. It will result in tapering before year-end. Fed Chairman Jerome Powell could be tempted to flag the move at Jackson Hole conference during the summer.