Home prices rose astronomically in 2020 despite a challenging year for the U.S. economy as the country continues to battle the coronavirus pandemic.
December is traditionally the slowest month for the housing market, but December 2020 defied the odds with price gains at the fastest pace in the last seven years.
Home prices rose 10.4% year over year in December, according to the national Case-Shiller index. Month over month, home prices rose 0.85%, marking the strongest November to December increase since recordkeeping began 25 years ago.
“December’s year-over-year change ranks within the top decile of all reports. 2020’s 10.4% gain marks the best performance of housing prices in a calendar year since 2013,” said Craig Lazzara, managing director and global head of index investment strategy at S&P DJI.
The numbers reflect a 10-city composite annual increase of 9.8%, up from 8.9% in November. The 20-city composite posted a 10.1% gain, up from 9.2% in the previous month. The data excludes the city of Detroit, which had coronavirus-related data collection issues.
The house buying demand has surged in recent months, prompted by record-low interest rates. The bulk of the housing market is comprised of sales of previously owned homes. According to the National Association of Realtors, those numbers rose in 2020 to their highest annual level since 2006.
The supply of available homes also dropped during 2020, creating competition between homebuyers in the marketplace. There were 1.07 million homes for sale at the end of December, down 23% from December 2019, according to the National Association of Realtors.
Also potentially aiding the price increase is the movement away from the city and into the suburbs brought on by the coronavirus pandemic.
“With buyer interest leading to an unseasonably competitive landscape…home prices remain on a steep upward trend,” said George Ratiu, senior economist at Realtor.com.
Among the cities that make up the data set, the ones that showed the most substantial price gains were Phoenix, Seattle, and San Diego. Phoenix’s prices year over year rose 14.4%, Seattle’s rose 13.6%, and San Diego’s rose 13%. In total, 18 out of the 19 cities reported higher prices ending in December than in November.
Separate data from the Federal Housing Finance Agency reported an 11.4% increase in home prices in December from a year earlier. The FHFA measures changes in single-family home values based on data from all 50 states and over 400 American cities to calculate house price indexes.
“House prices nationwide recorded the largest annual and quarterly increase in the history of the FHFA HPI. Low mortgage rates, pent-up demand from homebuyers, and a limited housing supply propelled every region of the country to experience faster growth in 2020 compared to a year ago despite the pandemic. In particular, house prices in western states and cities saw the highest rates of growth, where annual gains often rose above 10 percent,” said Dr. Lynn Fisher, Deputy Director of FHFA’s Division of Research and Statistics.
