By Nathalie Voit
The growth rate for home prices in August did not budge from their record-high July growth rate. According to the S&P CoreLogic Case-Shiller National Home Price Index, which tracks home prices across major U.S. urban areas, year-to-year home prices ending in August 2021 rose 19.8%, unmoved from the previous month. The figures reveal persistently high demand for housing despite soaring prices pushing some buyers out of the market.
The red-hot housing market has been driven by sustained homebuyer demand since the onset of COVID-19. The pandemic brought massive urban flight as more and more Americans traded in their cramped one-bedroom studios in the city for the comfort of a larger and more spacious home in the suburbs.
The single-family rental home market, for instance, saw a new generation of would-be home buyers turning to the fuss-free lifestyle of single-family rental living. The high demand, coupled with historically low housing supply levels, sent home prices skyrocketing.
“We’re just not building that many [smaller homes], despite what you hear about ‘tiny homes’ and that sort of thing,” said Len Kiefer, deputy chief economist at Freddie Mac. “There’s not that much new supply coming online, so the existing supply—which is aging—is fiercely competed over.”
Freddie Mac estimated the U.S. is short 3.8 million housing units.
According to the National Association of Realtors, the median home price in September reached $352,800, up 13.3% from a year earlier. Other indices similarly revealed steady demand, which continued to weigh in on prices.
The Case-Shiller 10-City Index, which measures changes in residential real estate value across 10 U.S. metropolitan areas, increased 18.6% in August. Meanwhile, the 20-City Index rose an annualized 19.7%, slightly down from its annual rate of 20% in July. The Case-Shiller data reveals price spikes in eight of the 20 cities.
Despite the strong demand, the August S&P metrics are the first time since early 2020 that annual gains haven’t increased. The news comes as a recent jump in mortgage rates threatens to dampen housing demand. According to mortgage loan giant Freddie Mac, the average rate on a 30-year fixed-rate mortgage rose to 3.09% as of Oct. 21.
“We have previously suggested that the strength in the U.S. housing market is being driven in part by a reaction to the COVID pandemic, as potential buyers move from urban apartments to suburban homes,” said Craig Lazzara, managing director and global head of index investment strategy at S&P DJI. “August data also suggest that the growth in housing prices, while still very strong, may be beginning to decelerate.”
Unless new supply enters the market, the home markets’ potential cooling is unlikely to decrease demand significantly, said Selma Hepp, deputy chief economist at CoreLogic.
“Persistently strong demand among traditional homebuyers has been amplified by an increase in demand among investors this summer,” Hepp said. “While strong home price appreciation rates are narrowing the pool of buyers, particularly first-time buyers, the depth of the supply and demand imbalance and robust demand among higher-income earners will continue to push prices higher.”
