By Natalie DeCoste
Home prices in the U.S. hit new record highs as consumers continue to face rising costs across the country.
Home-price growth climbed to a new record in May, fueled by high demand and low mortgage interest rates. The S&P CoreLogic Case-Shiller National Home Price Index, the index which measures average home prices in major metropolitan areas across the nation, rose by a record 16.6% over the past year that ended in May. The index is up from a 14.8% annual rate the prior month.
The growth reported in May marked the highest annual price growth rate since the index began recording in 1987. This is also the 12th straight month of accelerating prices reported by the index.
“I find myself running out of superlatives. We have previously suggested that the strength in the U.S. housing market is being driven in part by reaction to the pandemic, as potential buyers move from urban apartments to suburban homes. May’s data continue to be consistent with this hypothesis,” said Craig Lazzara, global head of index investment strategy at S&P Dow Jones Indices.
The 20-City composite also posted a 17% annual gain, up from 15% a month earlier. The 20-City results surpassed analysts’ median expectations of a 16.3% annual gain, according to Bloomberg consensus estimates. That was the biggest jump for the 20-City composite since August 2004.
A separate measure of home-price growth released by the Federal Housing Finance Agency also released Tuesday found an 18% increase in home prices during May from a year earlier. The agency also reported that this increase set a record for their data set, which goes back to 1991.
The significant growth of home prices has accelerated in the past year due to fierce competition in the market for a limited number of homes. The pandemic and record low-interest rates motivated many families and buyers to seek out more living space.
The National Association of Realtors also weighed in on the rising prices of homes, reporting that the median existing-home sales price in June rose 23.4% from a year earlier to $363,300, another record high.
Broken down by cities, Phoenix led the increases with a 25.9% gain, followed by San Diego, at 24.7%, and Seattle, at 23.4%.
With all the record growth in prices, buying has started to slow as potential buyers struggle to pay out such large sums. On Monday, the government reported that new-home sales in June were 32% below their peak set in January. New-home sales dropped 6.6% to an annual rate of 676,000.
The drop in buying amounted to the lowest level since the first month of the U.S. pandemic in early 2020.
“The jump in home prices has worked to sideline potential home buyers. This print is another piece of evidence confirming that residential investment will likely have become a drag on growth in the second quarter, following a strong performance in the previous few quarters,” said economist Katherine Judge at CIBC World Markets.
Beyond the sticker shock, builders face difficulties keeping up with demand as labor shortages and volatile material costs keep them from churning out the needed supply.
