House prices rose in April at the fastest rate on record

Home construction Delaney Park
Homes under construction in the Delaney Park housing development are seen from this drone view in Oakley, Calif., on Thursday, June 24, 2021.

  • Home prices soared 14.6% year-over-year in April as the nationwide supply shortage intensified.
  • The jump is the largest since the S&P CoreLogic Case-Shiller index began tracking data in 1987.
  • Home prices have surged through 2021 as builders struggle to catch up with unprecedented demand.
  • See more stories on Insider’s business page.

Another month, another acceleration in US home inflation.

Home prices throughout the US surged 14.6% from year-ago levels, according to the S&P CoreLogic Case-Shiller home price index. The reading marks a pick-up from the 13.3% rate seen in March and the fastest pace of price growth since data collection began in 1987. Economists surveyed by Bloomberg held a median estimate for a year-over-year jump of 14.7%.

Phoenix posted the largest one-year jump of 22.3%, according to a Tuesday press release. San Diego and Seattle followed close behind, with respective gains of 21.6% and 20.2%. Chicago registered the smallest gain, with home prices climbing 9.9% from April 2020.

Price growth accelerated broadly through April. All 20 cities included in the national index saw price growth land in the top quartile of historical performance. Charlotte, Cleveland, Dallas, Denver, and Seattle all notched their highest 12-month gains in history.

The US housing market has been on an absolute tear through 2021. Record-low mortgage rates and outsize demand drove sales sharply higher early in the pandemic. The buying spree quickly morphed into a price surge as Americans snapped up what little inventory existed before the health crisis. With buyers still clamoring for homes and supply only just rebounding, home inflation has spiked to highs not seen in modern history.

“This demand surge may simply represent an acceleration of purchases that would have occurred anyway over the next several years,” Craig Lazzara, global head of index investment strategy at S&P Dow Jones Indices, said in a statement. “Alternatively, there may have been a secular change in locational preferences, leading to a permanent shift in the demand curve for housing.”

Other indicators signal contractors aren’t likely to balance the market anytime soon. Housing starts rose just 3.6% in May, missing the economist forecast and offsetting just some of the prior month’s 12.1% slide. Building permits – which act as a more forward-looking indicator for residential construction – tumbled 3% to the lowest level since October.

The construction shortfall is likely to keep price growth elevated in the near term. Decades of inadequate homebuilding have left the country with a shortfall of up to 6.8 million units, according to a June report from the National Association of Homebuilders. Contractors would need to reach an annual construction pace of 2 million units to fill the gap in 10 years. But with starts sitting at just an annualized rate of just 1.57 million as of May, price pressures are set to linger well into the economic recovery.

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Global housing prices surge the most since 2006 as the market shows signs of overheating

US housing market
  • Global home prices rose 7.3% in the year to March, according to the Knight Frank Global House Price Index.
  • That’s the fastest price growth since 2006 and comes as some nations look to cool their housing markets.
  • Turkey, New Zealand, and Luxembourg saw the largest jumps, while prices fell in India and Spain.
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It’s not just the US housing market that’s on an absolute tear.

Home prices around the world are surging as strong demand squares off against strained supply. The average home price across 56 countries and territories rose 7.3% in the year to March 2021, according to the Knight Frank Global House Price Index. The jump marks the fastest rate of global home-price inflation since late 2006. Thirteen countries registered double-digit increases, and developing nations made up most of the top-ten gainers.

Turkey saw the largest price increase over the period, notching a 32% year-over-year bounce. New Zealand and Luxembourg followed with 22.1% and 16.6% increases, respectively.

The US registered the fifth-largest jump, with prices climbing 13.2% in the year to March. That marks the fastest rate of price growth since early 2005.

Government responses to the COVID-19 crisis are partially behind the international housing boom. Central banks around the world slashed interest rates in March 2020 which quickly dragged borrowing costs to historic lows. Couple the ultra-easy monetary policy with trillions of dollars in fiscal stimulus, and demand quickly outpaced supply across several markets.

What began as a surging sales pace has since turned into a red-hot housing boom. Supply shortages have hindered a pick-up in construction activity, leaving prices to surge as demand holds strong.

With home inventories under incredible pressure, some countries are moving to cool markets down before prices skyrocket further. Officials in China, New Zealand, and Ireland have used a range of tools to rein in home inflation, including new residential taxes and stricter lending policies.

“With governments taking action and fiscal stimulus measures set to end later this year in a number of markets, buyer sentiment is likely to be less exuberant,” Knight Frank said in the Thursday report. “Plus, the threat of new variants and stop/ start vaccine roll-outs have the potential to exert further downward pressure on price growth.”

Not all large-scale economies face overheating housing markets. Prices contracted 1.8% in Spain and 1.6% in India in the year to March, according to the Thursday report. Such declines were likely powered by strict lockdown measures and excess supply, Knight Frank said.

How to cool a red-hot market

Housing indicators in the US suggest the market tightness will last for a while longer. Home starts slid nearly 10% in April as soaring lumber costs and lot shortages cut into the supply rebound. Roughly 20% of contractors said in an April survey that they were delaying construction and sales, possibly due to squeezed profit margins.

Economists surveyed by the Urban Land Institute expect homebuilding to accelerate over the next few years as firms look to service outsize demand. The increase in home inventory should help price growth cool; The economists see home-price inflation returning to its pre-pandemic average of about 4% in 2023.

Still, the forecasts see demand outstripping supply into the mid-2020s. Unless the trend changes, millennials risk being priced out of the US housing market just as they reach their peak buying age.

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US home prices jumped the most in 7 years in December as the housing-market boom charged into the new year, Case-Shiller says

FILE PHOTO: Homes are seen for sale in the northwest area of Portland, Oregon March 20, 2014.  REUTERS/Steve Dipaola
Homes are seen for sale in the northwest area of Portland, Oregon.

  • The S&P Case-Shiller US home-price index rose to a 10.4% annualized increase in December, up from 9.5%.
  • The reading marks the strongest pace of price growth in seven years, according to a press release.
  • The data suggests the US housing market¬†ended 2020 strong amid low inventory and record-low mortgage rates.
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US home prices surged through the end of 2020 as record-low mortgage rates kept demand at elevated levels, and a general inventory shortage propped up prices.

The S&P CoreLogic Case-Shiller US National Home Price Index posted a 10.4% annualized increase in December, according to a Tuesday press release. The gain follows a 9.4% annualized climb in November and marks the biggest single-month leap in seven years seen by the index, a leading national dataset.

S&P Dow Jones Indices’ 10-City Composite index rose to an annualized gain of 9.8% from 8.9%. The 20-City Composite rose to a 10.1% year-over-year jump from November’s 9.2% reading.

Phoenix, Seattle, and San Diego saw the biggest home-price increases among the 19 cities surveyed in December.

“These data are consistent with the view that COVID has encouraged potential buyers to move from urban apartments to suburban homes,” Craig Lazzara, managing director and global head of index investment strategy at S&P DJI, said in a statement. “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.”

The housing market was one of the few pockets of the economy to see explosive growth through 2020 as new buyers rushed to scoop up dwindling inventory. The Federal Reserve’s decision to drop interest rates to nearly zero in March 2020 dragged on mortgage rates and, along with the onset of the work-from-home era,¬†sparked a homebuying spree. The surging pace of sales for new and existing homes quickly left contractors struggling to keep up.

Though the Tuesday release shows the housing market’s rally set to continue into 2021, momentum has wavered in recent weeks. After the 30-year fixed mortgage rate sank below 3% for the first ever in mid-2020 and stayed there for months, it turned higher in mid-January, signaling the buying frenzy could soon cool.

This shift was one of several January and February datapoints indicating investors are growing wary of inflation leaping higher as the economy recovers. Rising inflation would likely correspond with rising mortgage rates and, in turn, slow home-price growth.

Still, the US housing market will likely thrive through 2021 as more forthcoming stimulus bolsters homebuying activity, Fitch analysts led by Suzanne Mistretta said in a February 16 note. The firm said it expects prices and mortgage volume to continue growing in 2021 due to consistently low borrowing costs and lasting supply constraints. Demand is likely to outpace supply until the effects of the coronavirus pandemic fade, the analysts said. In other words, there won’t be enough homes to go around for a while yet.

Market health could waver should job losses creep into previously unaffected industries and hit higher-income workers, the team added.

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