U.S. home price growth surged to its highest level in six years in September.
Standard & Poor’s said Tuesday that its S&P CoreLogic Case-Shiller national home price index posted a 7% annual gain in September, up from 5.8% in August. That growth rate is the highest level since May 2014. The 20-City Composite posted a 6.6% annual gain, up from 5.3% the previous month — beating analysts’ estimates of 5.3%, according to Bloomberg.
“Housing prices were notably — I am tempted to say ‘very’ — strong in September,” said Craig J. Lazzara, managing director and global head of index investment strategy at S&P Dow Jones Indices, in a press statement. “This month’s increase may reflect a catch-up of COVID-depressed demand from earlier this year; it might also presage future strength, as COVID encourages potential buyers to move from urban apartments to suburban homes. The next several months’ reports should help to shed light on this question.”
Phoenix, for the 16th straight month, led the 20-City Composite posting a 11.4% annual increase. It was followed by Seattle and San Diego, which recorded a 10.1% and 9.5% annual gain, respectively.
“The strength of the housing market was consistent nationally — all 19 cities for which we have September data rose, and all 19 gained more in the 12 months ended in September than they had done in the 12 months ended in August,” said Lazzara.
High demand and low supply
The results follow data released earlier this month by the National Association of Realtors (NAR) which found that single-family existing home prices rose in all metro areas in the third quarter of 2020. The nation’s median existing single-family home price climbed 12.0% on a year-over-year basis, to $313,500 in the third quarter, according to NAR.
“The ongoing pandemic in the U.S. has driven up consumers’ interest in personal space. Low interest rates have also supported consumer demand despite the continued spread of COVID-19,” Nomura said in a research note. “Due to high demand and low supply, we expect the Case-Shiller home price index to rise further over the rest of 2020.”
The dearth of homes for sale and pent-up demand coupled with historically low mortgage rates have the housing market on a tear.
Total housing inventory continued to decline in October, down 2.7% to 1.42 million units from a month earlier and down 19.8% from one year ago, according to NAR. Unsold inventory sits at an all-time low of 2.5-month supply at the current sales pace.
“Homebuilders’ confidence has soared even though the actual production has not,” Lawrence Yun, NAR chief economist, said in a press statement. “All measures, such as reduction to lumber tariffs and expansion of vocational training, need to be considered to significantly boost supply and construct new housing.”
Replenishing the short supply of homes would help decelerate rising costs and improve market affordability, Yun noted.
Existing home sales increased in October, up for the fifth straight month, up 4.3% from September and up 26.6% from the same time a year ago to 6.85 million.
"Many housing indicators have been very upbeat lately and we think that low mortgage rates continue to support housing activity. And the recent strength in sales looks to be putting upward pressure on pricing,” said JPMorgan in a recent research note.
Amanda Fung is an editor at Yahoo Finance.