That the rapid rise in home prices since spring is setting near decade long highs was confirmed again this week, this time by CoreLogic. The company says its Home Price Index (HPI) rose 7.3 percent over the 12 months that ended in October and was the was the fastest rate of appreciation since April 2014. Prices were up 1.1 percent month-over-month.
The company says that home prices climbed in recent months due to heightened demand and ongoing home supply constraints. This could grow worse if the pandemic worsens and potential sellers hold off listing their homes. There is hope, however, for meeting some of the demand. New home construction surged in October and the National Association of Home Builders reported its index measuring home builder confidence in the new home market set a third record high in as many months.
While prices are rising rapidly on a nationwide basis, local markets continue to vary. Phoenix has a severe shortage of for-sale homes and prices there posted a 2.1 percent annual increase in October. Meanwhile, the New York-Jersey City-White Plains metro saw prices rise only 2.1 percent as residents continue to seek out more space in less densely populated areas. At the state level, Maine, Idaho, and Arizona experienced the strongest price growth in October, up 14.9 percent, 13.1 percent, and 12 percent, respectively.
"The pandemic has shifted home buyer interest toward detached rather than attached homes," said Dr. Frank Nothaft, chief economist at CoreLogic. "Detached homes offer more living space and are typically located in less densely populated neighborhoods. And while prices of single-family detached homes posted an annual increase of 7.9 percent in October, the price of attached homes rose only 4.5 percent year over year."
Looking forward, CoreLogic expects home prices to slow dramatically. Its HPI Forecast is for annual appreciation to drop to 1.9 percent by October of next year. The company adds, however, that should the economic recovery from the pandemic be more robust, then that projection for home price performance might improve.
"Home buyers have been spurred by record-low mortgage rates and an urgency to buy or upgrade to more space, especially as much of the American workforce continues to work from home," said Frank Martell, president and CEO of CoreLogic. "First-time buyers in particular should remain a big part of next year's home purchases, as the largest wave of millennials is heading into prime home-buying years."
The HPI Forecast also projects a continued disparity in price growth across metros. In markets like Las Vegas, where the local tourism economy and job market continue to struggle, home prices are expected to decline 1.8 percent by October 2021. Conversely, in San Diego, home prices are could grow by 7.9 percent over the next 12 months as low inventory continues to push prices up.