Torrid Demand, Scarce Inventory Fuels Double-Digit Home Price Growth

(Graphic courtesy of CoreLogic, Irvine, Calif.)

Our story so far: high demand for housing, coupled with near record-low inventories, results in double-digit annual home price growth. CoreLogic, Irvine, Calif., is the latest to confirm the trend.

The monthly CoreLogic Home Price Index and HPI Forecast said nationally, home prices increased by 15.4% in May from a year ago. Month-over-month, home prices increased by 2.3% from April. Single-family property appreciation (17.2%) was nearly double that of attached properties (9.1%) in May as prospective buyers continue to seek out more space.

The report said severe inventory shortages and sustained demand pushed home prices to record highs in May, with year-over-year increase in home prices at its highest level since 2005. While many millennials and Gen Z home buyers continue to move into the hot market thanks to low borrowing rates, high prices are likely deterring increasing numbers of prospective buyers — especially first-time and low-income families. Currently, 82% of consumers note housing affordability as a key problem, according to a recent CoreLogic survey. Additionally, 33% of respondents noted they would wait to buy or not buy at all rather than make sacrifices on their purchase.

The report said home prices rose sharpest in the west with Twin Falls, Idaho, experiencing the highest year-over-year increase at 35%. Coeur d’Alene, Idaho, ranked second with a year-over-year increase of 32%. At the state level, Idaho and Arizona continued to have the strongest price growth at 30.3% and 23.4%, respectively. Utah also had a 20.4% year-over-year increase as home buyers seek out more affordable locations with lower population density and attractive outdoor amenities.

“First-time buyers are hitting a wall in many places around the country as the pace of home price rises outpace the benefits of lower borrowing costs,” said CoreLogic President and CEO Frank Martell. “Younger and first-time buyers, including younger millennials, are faced with the challenge of having sufficient savings for a down payment, closing costs and cash reserves. As we look to the balance of 2021, we expect price rises to continue which could very well push prospective buyers out of the market in many areas and slow home price growth over the next year.”

CoreLogic said home prices are projected to increase 3.4% by May 2022, as affordability challenges deter potential buyers and cause a slowdown in home price growth.

“There are marked differences in today’s run up in prices compared to 2005, which was a bubble fueled by risky loans and lenient underwriting,” said CoreLogic Chief Economist Frank Nothaft. “Today, loans with high-risk features are absent and mortgage underwriting is prudent. However, demand and supply imbalances — fueled by a drop in mortgage rates to less than one-half what they were in 2005 and a scarcity of for-sale homes — has fed the latest run up in sales prices.”