E Economics

US Housing Prices Are Overheating Amid Tight Inventory

30 March, 2021




 

In January, a measure of US housing prices in 20 cities rose at the fastest pace since March 2014, boosted by low mortgage rates and limited inventory. On a YoY basis, the S&P CoreLogic Case-Shiller index (20-City Composite) rose 11.10 percent in January (up from 10.17 percent in December). Looking at the details, Phoenix, Seattle, and San Diego continued to report the highest YoY gains among the 20 cities. In the meantime, Bloomberg also highlighted that the S&P CoreLogic Case-Shiller index of national property values climbed 11.22 percent YoY. The increase followed a 10.41% gain in December and was the biggest jump since February 2006.

 

U.S.-housing-prices-CS

 

This trend was confirmed by other indexes. As a matter of fact, the CoreLogic House Price Index for January grew by 10.05% YoY (up from 9.15% YoY in December). It was the fastest increase since October 2013. In addition, the FHFA (Federal Housing Finance Agency) purchase-only price index rose 12.0 percent YoY in January (the largest increase on record and up from 11.4 YoY percent in December).

 

U.S. housing prices (FHFA)

 

According to my proxies, US housing prices will keep strenghtening in the short term — with S&P CoreLogic Case-Shiller index (20-City Composite) probably increasing by 12.0 percent YoY in February — amid strong fundamentals:

→ Mobility will improve as more states are expected to ease Covid-19 restrictions in the coming months
→ 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 February

 

Focusing on monetary policy, investors will keep an eye on real estate given that a constant spike of housing prices (by more than 10.0% YoY) will probably take place in H1 2021 and could push policymakers to think about tapering MBS purchases sooner than expected.