Based on CoreLogic's latest Home Price Index, U.S. home prices increased 6.7% in September 2020, compared with September 2019, marking the fastest annual acceleration since May 2014. On a month-over-month basis, home prices increased by 1.1% compared to August 2020.
Home-purchase demand maintained pace in the late summer compared to previous years, as record-low mortgage rates continue to motivate prospective homebuyers, including first-time buyers and homeowners looking to trade-up or invest in a second home. However, according to the National Association of Realtors and U.S. Census Bureau, the national supply of homes for sale fell to the lowest recorded level in September at 40% of that seen in September 2008 and 75% of that seen in September 2000. This severe inventory shortage has intensified upward pressure on home price appreciation as consumers compete for the limited number of homes on the market.
"Housing continues to be a bright spot during an otherwise challenging economic time for many U.S. households," said Frank Martell, president and CEO of CoreLogic. "Those in sectors that weathered the transition to remote work successfully are now able to take advantage of low mortgage rates to purchase a home for the first time or to trade-up to a larger home."
Dr. Frank Nothaft
"COVID has contributed to the acute shortage of inventory as the pace of new construction slowed and older prospective sellers postponed listing their homes until after the pandemic," said Dr. Frank Nothaft, chief economist at CoreLogic. "Once the pandemic passes or a vaccine is widely administered, we should see a noticeable pick-up in for-sale homes. And if the economy's recovery is sluggish next year, distressed sales may also add to market inventory."
Despite the rapid acceleration of national home price growth, local markets continue to vary. For instance, in Phoenix, where there is a severe shortage of for-sale homes, prices increased 11.1% in September. Meanwhile, the New York-Jersey City-White Plains metro recorded only a small annual increase in home prices of 0.3%, as residents opt for more space and privacy in less densely populated areas. By state, Idaho, Arizona and Maine experienced the strongest price growth in August, up 11.8%, 11% and 11%, respectively.
Looking forward, the HPI Forecast shows national home price increases slowing to 0.2% over the next 12 months as eroding affordability and increased for-sale inventory moderates appreciation. However, should the economic recovery be more robust, then we would expect projections for home price performance to improve.
The HPI Forecast also reveals the disparity in expected home 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 5.6% by September 2021. Conversely, in San Diego, home prices are forecasted to increase 5.7% over the next 12 months as low inventory continues to push prices up.