US Home Prices Increased At Fastest Pace On Record In July

The S&P CoreLogic Case-Shiller 20 City US Home Price Index increased 20% year-over-year in July 2021, the fastest pace on record. This represents an acceleration compared to June’s increase of 19% year-over-year.

“July’s 19.7% price gain for the National Composite is the highest reading in more than 30 years of S&P CoreLogic Case-Shiller data. This month, New York joined Boston, Charlotte, Cleveland, Dallas, Denver, and Seattle in recording their all-time highest 12-month gains. Price gains in all 20 cities were in the top quintile of historical performance; in 15 cities, price gains were in the top five percent of historical performance,” said Craig J. Lazzara, Managing Director and Global Head of Index Investment Strategy at S&P DJI.

“We have previously suggested that the strength in the U.S. housing market is being driven in part by a reaction to the COVID pandemic, as potential buyers move from urban apartments to suburban homes. July’s data are consistent with this hypothesis. This demand surge may simply represent an acceleration of purchases that would have occurred anyway over the next several years. Alternatively, there may have been a secular change in locational preferences, leading to a permanent shift in the demand curve for housing. More time and data will be required to analyze this question.”

Strong demand, low interest rates, rising employment and fewer existing homes available for sale have all contributed to the rapid rise in home prices this year. The fastest-growing regions included Phoenix (32%), San Diego (28%), and Seattle (26%). The index has increased for 14 consecutive months following the slowdown created by the pandemic.

Sales of newly built, single-family homes in August rose 1.5% to a 740,000 seasonally adjusted annual rate according to data gathered by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. Sales are up 2.4% on a year-to-date basis.

“New home sales stabilized in late summer following a cooling trend that took hold last winter,” said NAHB Chairman Chuck Fowke. “Builder sentiment remains strong and housing demand is being supported by ongoing low mortgage interest rates and a shortage of existing home inventory.”

New single-family home construction accelerated during the summer, reaching the highest level since 2007. Home builder confidence rose to 82 in September after a several month pullback as framing costs moderated given the pullback in lumber prices. Lumber prices had increased over 400% earlier this year because sawmills had a difficult time keeping the industry supplied. Builder confidence pulled back over the summer as many home builders struggled with higher construction costs, supply chain problems and labor constraints. Construction costs typically represent more than 60% of a new home cost, and the increase in lumber prices created meaningful headwinds for the industry.

The inventory of homes available is about 50% lower than normal levels. New home construction will likely remain elevated as market inventory normalizes. Single-family home construction since the last housing boom has been lower than its multi-decade historical average. Experts believe it will take many years for home builders to catch up to demand.