Home Prices Keep Going Up, Up, Up

A flurry of economic reports shows U.S. home price appreciation, triggered by low housing inventories, keep pushing toward—and beyond—double-digit percentage annual growth.

Here’s a quick summary of several reports released this week:

S&P CoreLogic Case-Shiller Index: 10.4% Annual Growth to End 2020

S&P Dow Jones Indices, New York, said its S&P CoreLogic Case-Shiller Indices (https://www.spglobal.com/spdji/) reported a 10.4% annual gain in December, up from 9.5% in November. The 10-City Composite annual increase came in at 9.8%, up from 8.9% in the previous month. The 20-City Composite posted a 10.1% year-over-year gain, up from 9.2% in the previous month.

Phoenix led all cities with a 14.4% year-over-year price increase, followed by Seattle at 13.6% and San Diego at 13% increase. Eighteen of the 19 cities reported higher price increases in the year ending December 2020 versus the year ending November.

Month over month, before seasonal adjustment, the U.S. National Index posted an 0.9% month-over-month increase, while the 10-City and 20-City Composites both posted increases of 0.9% and 0.8%, respectively in December. After seasonal adjustment, the U.S. National Index posted a month-over-month increase of 1.3%, while the 10-City and 20-City Composites both posted increases of 1.2% and 1.3% respectively. Eighteen cities (excluding Detroit, which had insufficient data) reported increases before seasonal adjustment, while all 19 cities reported increases after seasonal adjustment.

“The trend of accelerating prices that began in June 2020 has now reached its seventh month and is also reflected in the 10- and 20-City Composites Home prices finished 2020 with double-digit gains,” said Craig J. Lazzara, Managing Director and Global Head of Index Investment Strategy with S&P. “The market’s strength continues to be broadly-based.”

Lazzar said as COVID-related restrictions began to grip the economy in early 2020, their effect on housing prices was unclear. “Price growth decelerated in May and June, and then began a steady climb upward, and December’s report continues that acceleration in an emphatic manner,” he said. “2020’s 10.4% gain marks the best performance of housing prices in a calendar year since 2013…“These data are consistent with the view that COVID has encouraged potential buyers to move from urban apartments to suburban homes. This may indicate a secular shift in housing demand, or may simply represent an acceleration of moves that would have taken place over the next several years anyway.”

“2020 was an unprecedented year in many ways, especially for the housing market,” said Selma Hepp, Deputy Chief Economist with CoreLogic, Irvine, Calif.

The report said as of December, average home prices for the MSAs within the 10-City and 20-City Composites are exceeding their winter 2007 levels.” The momentum in buyer demand that picked up speed during the second half of the year propelled through the end of the year, and seemingly into 2021,” Hepp said. “But acceleration in price growth is largely driven by record-low mortgage rates and the severe undersupply of for-sale home – two factors that may take a turn this year and relieve some of the price pressure. But, demand from millennials and existing owners, who may have been on the sidelines throughout the pandemic, is likely to persist.”

Radian: 2021 Home Prices Pick Up Right Where 2020 Left Off

Radian, Philadelphia, released its monthly Home Price Index, showing after an historic 2020, the first month of 2021 weakened—albeit just slightly.

The Index, released by Radian subsidiary Red Bell Real Estate LLC, showed home prices nationally rose from the end of December to the end of January at an annualized rate of 7.5 percent. For the past 12 months, the Radian HPI rose 8.0 percent, unchanged from the prior month’s annualized rate. Over the last six months of the year, home prices nationally appreciated at an annualized rate of 9.4 percent—the fastest rate of six-month appreciation in more than a year.

“Home prices picked up in January, about where they left off in December. Home prices across the U.S. were solidly in positive territory once again,” said Steve Gaenzler, Radian Senior Vice President of Data and Analytics. “With elections, inaugurations and the holidays behind us, and vaccinations and modest levels of potential normalcy visible on the horizon, it shouldn’t surprise many that homes prices continue to be a shining star.”

The report said the national median estimated price for single-family and condominium homes rose to $270,334. From December to January the one-month appreciation, an annualized 7.5 percent rate, was the slowest recorded since August. Historically, home prices have come under pressure during periods of economic stress as foreclosure sales and other distressed transactions add discounted properties into the inventory.

FHFA: U.S. House Prices Rise 10.8 Percent in 2020; Up 3.8 Percent in the 4Q

The Federal Housing Finance Agency said U.S. house prices rose 10.8 percent year over year. The FHFA House Price Index said home prices rose by 3.8 percent compared to a year ago. FHFA’s seasonally adjusted monthly index for December rose by 1.1 percent from November.

“House prices nationwide recorded the largest annual and quarterly increase in the history of the FHFA HPI,” said Lynn Fisher, Deputy Director of FHFA’s Division of Research and Statistics. “Low mortgage rates, pent up demand from homebuyers, and a limited housing supply propelled every region of the country to experience faster growth in 2020 compared to a year ago despite the pandemic. In particular, house prices in western states and cities saw the highest rates of growth, where annual gains often rose above 10 percent.”

The report said home prices have risen for 38 consecutive quarters, or since September 2011. House prices rose in all 50 states and the District of Columbia between the fourth quarters of 2019 and 2020.  The top five areas in annual appreciation were 1) Idaho 21.1 percent; 2) Montana 15.5 percent; 3) Utah 15.4 percent; 4) Arizona 14.1 percent; and 5) Connecticut 14.1 percent. Idaho has been the leading state for the past nine quarters. Areas showing the lowest annual appreciation were 1) District of Columbia 1.5 percent; 2) Louisiana 5.9 percent; 3) Hawaii 6.1 percent; 4) North Dakota 6.7 percent; and 5) Illinois 7.7 percent.

Of the nine census divisions, the Mountain division experienced the strongest four-quarter appreciation, posting a 13.3 percent gain year over year and a 4.6 percent increase in the fourth quarter. The Mountain division has been the leading region for 13 consecutive quarters. Annual house price appreciation was weakest in the West South-Central division, where prices rose by 8.6 percent year over year.

First American: Home Prices Rising Fast, But Many Remain Undervalued

First American Financial Corp., Santa Ana, Calif., released its December Real House Price Index, showing home-buying power rose by 21 percent year over year. But Chief Economist Mark Fleming said despite this growth, many housing markets in the U.S. remain undervalued.

“While nominal prices have risen, house-buying power has grown even faster, increasing 21 percent year over year due to historically low rates and still rising incomes for those employed,” Fleming said. “If housing is appropriately valued, house-buying power should equal or outpace the median sale price of a home. Looking back at the bubble years, house prices exceeded house-buying power in 2006 nationally, but today house-buying power is nearly twice as high as the median sale price nationally. Of course, real estate is local and not all markets are created equal.” 

The report said of the top 50 markets tracked, only three markets, all located in California, were overvalued, meaning the median existing-home sale price exceeded house-buying power, in December. The market with the highest overvaluation was Los Angeles, where the median consumer house-buying power in December was just over $590,000, significantly below the median sale price of a home $729,000. San Francisco and San Jose were also overvalued, although to a lesser extent. However, all three overvalued markets are still significantly less overvalued than during the national housing boom peak in March 2006. Los Angeles, for example, was overvalued by approximately $286,000 in 2006, more than twice what it is today.

First American said the remaining 47 markets in the report are undervalued, many significantly so. In fact, in December 2020, the average percentage difference between house-buying power and the median sale price of an existing home in these 47 markets was nearly 59 percent. In 2006, only 34 markets were considered undervalued, and the average percentage difference between house-buying power and the median sale price of an existing home was 39 percent.

“As the housing market heads into the spring home buying season, the ongoing supply and demand imbalance all but assures more house price growth,” Fleming said. “During the housing bubble, rapid house price appreciation was not entirely supported by economic fundamentals, but in today’s housing market, nominal house price appreciation has been driven by a historic shortage of supply relative to demand and rate-driven surge in house-buying power. Many find it hard to believe, but housing is actually undervalued in most markets and the gap between house-buying power and sale prices indicates there’s room for further house price growth in the months to come.”