US home prices soared at the fastest rate since 2006 in February

House for sale US
A house’s real estate for sale sign shows the home as being “Under Contract” in Washington, DC, November 19, 2020.

  • US home prices surged 10.4% year-over-year in February, the biggest such jump since 2006.
  • The market has been red hot during the pandemic, but affordability represents a new challenge.
  • Price growth will cool into 2022 as mortgage rates rise and price out more buyers, CoreLogic said.
  • See more stories on Insider’s business page.

Everyone knows it’s been hard to find an affordable house amid the pandemic, but as the data comes in, it’s becoming clearer just how hard.

The answer: Extremely.

US home prices continued to rip higher in February as supply constraints across the country and outsize demand boosted competition.

Selling prices increased 10.4% in February from year-ago levels, marking the largest year-over-year gain since 2006, according to CoreLogic data published Tuesday. Prices rose 1.2% from levels seen in January 2021. Idaho and Montana saw the biggest jumps, with year-over-year gains of 22.6% and 19.5%, respectively, according to the financial analytics firm CoreLogic.

And the outlet sees another year of more expensive housing ahead, projecting prices will rise another 3.2% by February 2022. The end of the pandemic can ease constraints on supply, CoreLogic said. On the demand side, it expects the lack of affordable housing to cut into some potential purchases.

“The run-up in home prices is good news for current homeowners but sobering for prospective buyers,” Frank Nothaft, chief economist at CoreLogic, said. “Those looking to buy need to save for a down payment, closing costs, and cash reserves, all of which are much higher as home prices go up.”

The housing market was among the few hotbeds of economic activity throughout the coronavirus pandemic. The Federal Reserve’s emergency rate cuts in March 2020 pulled mortgage rates to numerous record lows throughout last year, leading many to take advantage of more appealing borrowing costs. Prolonged work-from-home periods spurred moves from apartment-dense cities into suburbs, which also lifted housing-market demand.

The buying spree quickly snapped up most of the market’s available supply, but that streak recently showed signs of slowing. For one, expectations for a strong economic recovery saw investors dump Treasurys in recent weeks, lifting yields on government debt and in turn leading mortgage rates to swing higher. Rates now sit at their highest levels since June after rising for seven weeks straight.

The turnaround in mortgage rates and soaring prices seemed to finally bite into the housing market’s rally in February. Existing home sales fell 6.6% that month to the slowest rate since August, according to the National Association of Realtors. At the same time, supply remained a measly 1.03 million units, a level that would only satisfy two months of sales at the February rate. Should prices trend even higher, the red-hot market could cool even faster.

“Homebuyers are experiencing the most competitive housing market we’ve seen since the Great Recession,” CoreLogic CEO Frank Martell said. “As affordability challenges persist, we may see more potential homebuyers priced out of the market and a possible slowing of price growth on the horizon.”

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The US housing-inventory crisis is starting to bite existing home sales, which fell the most since August last month

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.

  • Existing home sales fell 6.6% in February to the slowest rate since August, according to NAR data.
  • Inventory held at a record-low 1.03 million, underscoring the market’s supply-demand imbalance.
  • The median selling price crept higher to $313,000 to tie the record high seen in October.
  • See more stories on Insider’s business page.

Sales of previously owned homes in the US declined more than expected in February as the housing market’s supply shortage further curbed the recent buying spree.

Existing home sales fell 6.6% last month to a seasonally adjusted annual rate of 6.22 million, according to data published by the National Association of Realtors. The reading is the first decline since November and drags the pace of sales to its lowest since August. Still, sales are up 9.1% from the year-ago level.

Economists surveyed by Bloomberg had expected a more modest drop to a 6.49 million sales rate.

The median existing-home price crept higher to $313,000, marking 108 consecutive months of year-over-year gains. The new level ties October’s record high and sits 15.8% above the year-ago level.

Home inventory remained at a record-low 1.03 million units at the end of last month. Unsold units now count for two months of sales at their current rate, up slightly from January’s 1.9 month supply.

Supply was down 29.5% year-over-year at the end of February, underscoring the shortage that’s contributed to higher prices and a now-slowing pace of sales. Home purchases first boomed at the start of the pandemic as record-low interest rates pulled borrowing costs lower. Mortgage rates set several record lows in 2020 and further boosted buying activity.

Supply strains have since lifted prices even higher, and mortgage rates are now reversing their months-long decline. Lumber shortages have also pressured costs, with the National Association of Home Builders saying last month that rising material costs are adding $24,000 to the price of new homes.

These obstacles will likely curb the market’s rally as the economy reopens, Nancy Vanden Houten, lead US economist at Oxford Economics, said.

“We look for the pace of existing-home sales to drift lower over the course of the year as headwinds from a lack of supply and eroding affordability are partially offset by the tailwinds of still-strong demand, particularly from younger households and a solid recovery,” she added.

The National Association of Realtors is more bullish toward the strained market. While affordability is weakening, strong savings and a boost from Democrats’ latest relief package should keep demand elevated through 2021, Lawrence Yun, chief economist at NAR, said.

“Various stimulus packages are expected and they will indeed help, but an increase in inventory is the best way to address surging home costs,” he added.

Contractors are struggling to rise to the occasion. Building starts for new privately owned residences fell 10.3% to a seasonally adjusted annual rate of 1.42 million in February, according to the Census Bureau. That’s the lowest level since August and marks a second straight month of decline.

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US mortgage rates hit a 9-month high – and they’ve been climbing since January as inflation fears rise

Model homes and for sale signs line the streets as construction continues at a housing plan in Zelienople, Pa., Wednesday, March 18, 2020.  U.S. new home sales fell 4.4% in February with bigger declines expected in coming months as the coronavirus puts a major crimp on home sales. (AP Photo/Keith Srakocic)
Model homes and for sale signs line the streets as construction continues at a housing plan in Zelienople, Pa., Wednesday, March 18, 2020. (AP Photo/Keith Srakocic)

  • The average 30-year fixed mortgage rate rose to 3.09% this week, its highest level since June.
  • Rates have been rising since January as markets gird for economic reopening and stronger inflation.
  • Still, demand for homes is handily outstripping supply as new construction fails to accelerate.
  • See more stories on Insider’s business page.

Mortgage rates continue to climb in the US as concerns of rising inflation counter past months’ historically low borrowing costs.

The average 30-year fixed mortgage rate rose to 3.09% this week, according to data from Freddie Mac. That’s the highest level since late June and compares to a reading of 3.05% one week prior. Still, the 30-year rate average sits well below its year-ago level of 3.65%.

The average 15-year fixed mortgage rate rose to 2.4% from 2.38% last week to hit, hitting its highest point since September.

Mortgage rates have steadily risen since January as investors position for stronger inflation as the economy rebounds. Treasury yields underpin a wide range of borrowing rates including those for home loans, and the recent sell-off in government bonds placed upward pressure on mortgage rates. The 10-year yield rose to a 14-month high following the Federal Reserve’s March policy meeting on Wednesday, signaling rates will trend higher in the coming weeks.

The trend hasn’t yet pushed potential buyers out of the market, Sam Khater, chief economist at Freddie Mac, said in a statement. While the 30-year average rate now sits well above its January floor of 2.65%, borrowing costs are still relatively low. Robust demand for new homes also signals the housing market boom has plenty of staying power, the economists said.

“Residential construction has declined for two consecutive months and given the very low inventory environment, competition among potential homebuyers is a challenging reality, especially for first-time homebuyers,” Khater added.

More barriers than just higher mortgage rates

The housing market was one of the few pockets of the economy to see activity surge through the pandemic. The Federal Reserve’s decision to cut interest rates to record lows one year ago dragged mortgage rates to historically low levels and spurred fresh demand.

But while interest rates remain near zero, mortgage rates have been more closely tracking Treasury yields. The near-zero rates that sparked the housing boom are no longer its primary driver.

New hurdles have emerged from the strained relationship between buyers and builders. Home prices shot higher as demand handily outstripped supply. And though rates have risen through the spring, contractors are still unable to keep up with the market.

That supply-demand imbalance is now forcing potential homebuyers to pay above listing prices just to secure a purchase. The sale-to-list price ratio tracked by Redfin rose to 100.1% for the week that ended March 7, its highest level since data collection began in 2016. The firm also found median sales prices for newly listed homes reached a record high and that new listings were down 17% year-over-year.

Even pricier materials are contributing to soaring home costs. The National Association of Homebuilders said last month that factory shutdowns last March slammed lumber supply chains and led to a spike in the commodity’s price. Elevated lumber costs now add roughly $24,000 to the price of a new home, NAHB Chairman Chuck Fowke told HousingWire.

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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.
  • Visit the Business section of Insider for more stories.

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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