Curiosity Charges, Investor Consumers, a “Double-Whammy” for Value Development
The Federal Housing Finance Agency (FHFA) and all three S&P CoreLogic Case-Shiller price indices posted annual price gains of over 19 percent in July. Each index accelerated from its growth rates in June and set new price records.
Case-Shiller’s National Home Price NSA Index, which covers all nine U.S. census divisions, rose 19.7 percent in July compared with 18.7 percent in the previous month. The 10-city and 20-city composites increased by 19.1 and 19.9 percent, compared to 18.5 percent and 19.1 percent, respectively.
Phoenix recorded the largest increase in value of the 20 cities at 32.4 percent in the 26th month. Phoenix was followed by San Diego with an annual increase of 27.8 percent and Seattle with 25.5 percent. Seventeen of the 20 cities reported higher price increases in July 2021 than in June 2021.
The deputy chief economist of CoreLogic, Selma Hepp, summarized the current trends. “The scorching hot real estate markets of the summer can be seen in the latest house price indices, which continue to climb to all-time highs. There is a surge of millennials approaching prime age for home ownership and experiencing more flexibility to expand their search locations in the light.” Additionally, this cohort is still benefiting from historically low mortgage rates, and coupled with an influx of investor buyers over the summer, this has created a double blow to home price growth the high demand from buyers has even exceeded the improvements in the range of properties for sale from the all-time lows in the spring. For the future, while there are indicators pointing to a withdrawal of buyers, it is still not enough to dampen home price growth before the fall.
Compared to June, the National Index rose by a seasonally adjusted 1.5 percent and, after adjustment, was 1.6 percent higher. The 10-City Composite grew by 1.4 percent after adjustment and by 1.3 percent when unadjusted, while both versions of the 20-City grew by 1.5 percent.
“Craig J. Lazzara, Managing Director and Global Head of Index Investment Strategy at S&P DJI, said,” The past few months have been exceptional not only for the size of price gains, but also for the consistency of earnings across the country. All 20 cities gained in July, and 17 gained more in the 12 months to July than in the 12 months to June. Home prices in 19 of our 20 cities are now reaching all-time highs, with the only outlier (Chicago) just 0.3% below its 2006 high. The National Composite, as well as the 10- and 20-city indexes, are also at their all-time highs.
“The National Composite’s July gain of 19.7% is the highest S&P CoreLogic Case-Shiller data in more than 30 years. This month, New York, along with Boston, Charlotte, Cleveland, Dallas, Denver and Seattle their all-time highest 12-month profits. Share price gains in all 20 cities were in the top quintile of historical performance; in 15 cities, the price gains were in the top five percent of historical performance.
“We previously indicated that the strength of the US housing market is being driven in part by a response to the COVID pandemic as potential city apartment buyers move to suburban homes. July data is consistent with this hypothesis and represents an acceleration in purchases that would have occurred over the next few years anyway. Alternatively, a secular change in location preferences could have led to a permanent shift in the demand curve for housing. The analysis requires more time and data to answer this question.
The S&P CoreLogic Case-Shiller House Price Indices were created to accurately track the price history of typical single-family house pairs for thousands of single houses from the available universe of industry-standard sales data. The National US Home Price Index tracks the value of single-family homes in the United States. In January 2000, the indices have a base value of 100; For example, a current index value of 150 corresponds to a rate of increase in value of 50 percent since January 2000 for a typical home within the relevant market.
In July 2021, the National Index was 265.35 compared to 260.87 in June. The 10- and 20-city composites had values of 284.74 and 272.34, compared to 280.86 and 268.21 in the previous month. Los Angeles has the highest index value with 358.50. Cleveland remains in last place with a score of 156.02.
The FHFA’s house price index (HPI) rose by 19.2 percent in the 12 months that ended in July. The previous month’s annual growth was 18.8 percent. On a monthly basis, the revaluation was 1.4 percent. The previously reported price change of 1.6 percent for June 2021 has been revised up to 1.7 percent.
For the nine census divisions, seasonally adjusted monthly house price changes since June decreased from 0.8 percent in the West North Central division to 1.9 percent in the South Atlantic division. The 12-month changes ranged from 15.6 percent in the West North Central division to 25.6 percent in the Mountain division.
“Record appreciation rates continued for the US in July,” said Dr. Lynn Fisher, Associate Director of Research and Statistics at FHFA. “Although the monthly rate of increase slowed in most census departments in July, four areas saw annual growth rates of over 20 percent and all of them saw annual increases of over 15 percent.”
The FHFA HPI tracks the price of homes purchased with funding from GSEs Fannie Mae and Freddie Mac. The index was rated 100 in January 1991. The July value was 348.4.