The S&P CoreLogic Case-Shiller Indices are released each month. They are the gold standard for measuring U.S. home prices. July, the latest month reported, showed a national home price increase of 19.7% over the same month last year, a record in the 27 years that the study has been in existence.
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CoreLogic Deputy Chief Economist Selma Hepp commented:
Homebuyers across all ages continue to enjoy historically low mortgage rates, but have now also been joined by an influx of investor buyers over the summer. This continued high buyer demand has even outstripped the improvements in the supply of for-sale homes from the all-time lows experienced in the spring.
Fundamentally, this means many of the triggers for rising home rates this year remain unchanged. Mortgage rates have not risen (although government bond rates and inflation have). Incomes for Americans in the middle and upper classes were rarely hurt by the pandemic recession. The value of the assets held by many people has grown because of the stock market and improved home equity numbers. People continue to move from big coastal cities to ones inland with lower costs of living. The so-called work-from-home economy has allowed this.
The Case-Shiller figures by city show the surge in prices in the tier of cities below New York, Los Angeles and San Francisco. The authors wrote: “Phoenix led the way with a 32.4% year-over-year price increase, followed by San Diego with a 27.8% increase and Seattle with a 25.5% increase.”
The question going forward is whether this level of increase can continue. Several headwinds have already begun. Inflation may cause the Federal Reserve to increase rates, which eventually will spill over into the mortgage market. Builders, driven by high home prices and potential profits, will add inventory, which should push up supply to a tight market. The thousands of people who are relocating or plan to will start to dwindle.
Finally, a new slowdown in the economy, likely driven in part by another wave of COVID-19 infections, will affect how much people can pay for a new home.
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