E Economics

US Home Prices Are Rising Most In Decades

30 June, 2021
30-Year Mortgage Rate

US home prices remained well oriented in April, rising the most in decades while several proxies already suggest that the trend strenghtened in May. The housing prices frenzy has raised concerns among White House officials and could push Fed policymakers to act by tapering MBS purchases before year-end.

In April, US home prices increased the most in decades

A measure of home prices in 20 cities rose at the fastest pace since December 2005, boosted by a lack of inventory and low mortgage rates. On a YoY basis, the S&P CoreLogic Case-Shiller index (20-City Composite) rose 14.88% in April (up from 13.36% in March). In the meantime, the S&P CoreLogic Case-Shiller index of national property values climbed 14.59% YoY, the biggest gain in data going back to 1988. The increase followed a 13.32% gain in March.

This trend was confirmed by other indexes. As a matter of fact, the CoreLogic House Price Index for April grew by 13.0% YoY (up from 11.3% YoY in March). It was the third consecutive month of double digit gains and the highest rate of annual appreciation since February 2006. Over the same period, the FHFA (Federal Housing Finance Agency) purchase-only price index rose 15.7% YoY (the largest increase on record and up from 14.0% YoY percent in March).

The trend strenghtened in May

Latest reports confirm that home prices climbed at a faster rate in May. Last week, the NAR highlighted that “The median existing-home price for all housing types in May was $350,300, up 23.6% from May 2020 ($283,500), as every region registered price increases. This is a record high and marks 111 straight months of year-over-year gains since March 2012.

In the meantime, Redfin reported “The national median home-sale price hit a record high of $377,200, up a record 26% year over year.” Lastly, “The typical U.S. home grew in value by 13.2% year-over-year in May, and was up 1.7% from April, to $287,148 — both record highs in Zillow data that dates to 1996.

Yesterday, Matthew Speakman at Zillow underlined “despite showing some signs of bottoming, the number of available homes for sale remains historically small, particularly given the elevated demand for housing. Prices have skyrocketed as a result, and price growth continues to set new record highs. What’s more, despite sharply rising prices, demand for homes remains very strong. Bidding wars for the relatively few houses available remain common and homes are going under contract at an increasingly fast pace.

In this context, the Zillow forecast is for the 20-City index to grow by 16.5% YoY in May (would be the highest since March 2005) and for the Case-Shiller National index to jump by 16.2% YoY (would be a new record high in data going back to 1988).

The housing prices frenzy could push officials to act

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. The housing prices frenzy has already raised concerns among White House officials. Focusing on monetary policy, the situation could push Fed policymakers to act by tapering MBS purchases before year-end. As a matter of fact, Reuters reported “Federal Reserve Governor Christopher Waller on Tuesday said the U.S. central bank may need to start dialing down its massive asset purchase program as soon as this year to allow the option of raising interest rates by late next year.” Waller said he would be “all in favor” of phasing out MBS purchases first. “Right now the housing markets are on fire; they don’t need any other unnecessary support,” he added. “And it’s an easy sell to the public.