While many segments of real estate are suffering through COVID shutdowns, for-sale housing is flourishing.
The latest data point comes from CoreLogic’s most recent US Home Price Index, which showed that annual home price growth accelerated to its fastest rate in nearly two years.
The HPI posted a 5.5% year-over-year increase in July. Home prices increased by 1.2% compared to June.
“On an aggregated level, the housing economy remains rock solid despite the shock and awe of the pandemic,” Frank Martell, president and CEO of CoreLogic, said in recent commentary. “A long period of record-low mortgage rates has opened the floodgates for a refinancing boom that is likely to last for several years. In addition, after a momentary COVID-19-induced blip, purchase demand has picked up, driven by low rates and enthusiastic millennial and investor buyers.”
CoreLogic’s July HPI numbers come on the heels of strong housing numbers from other sources. Real estate brokerage firm Redfin recently reported the median price of sold homes jumped 10%, which was the largest increase in over six years, to a new all-time high of $314,000.
CoreLogic attributed the robust home price appreciation to strong demand, which was bolstered by mortgage rates that fell below 3% for the first time in July, and depleted for-sale inventory, which has pushed on home price appreciation.
While the HPI posted strong home price appreciation numbers in the last couple of months, CoreLogic indicates that it expects appreciation to slow through 2021 but remain positive. The report indicates that “an increase of distressed-sale inventory as continued financial pressures leave some homeowners unable to make mortgage payments, especially as forbearance periods come to a close.”
But that isn’t the only factor that could slow appreciation.
“Home price appreciation is expected so slow as fewer and fewer people are able to afford to buy a home,” says Selma Hepp, research and insights and deputy chief economist at CoreLogic. “Note that the recent jump in home purchases is in part driven by record-low mortgage rates, which has provided home buyers more affordability than last year. Given that home price growth has exceeded income growth in recent years, home price growth is expected to slow to allow incomes to catch up.”
People’s desire to leave more dense environments, which they may perceive as a greater threat in the COVID era, could also be driving this demand for single-family homes. In the report, CoreLogic said that homebuying activity is “becoming more pronounced in traditionally affordable suburban and rural areas that allow for more space as schools and work remain online.”
As an example, the data provider pointed to home prices in Nassau and Suffolk counties, which posted a 4.3% year-over-year increase in July.
Fannie Mae’s Economic and Strategic Resource Group recently posted similar commentary, saying that “some early signs of shifting buyer preference to lower density areas, potentially driving some additional purchase activity.”
But Hepp doesn’t expect this to be a permanent trend. “The migration away from metro areas is likely not a long-term thing,” she says. “As we saw in previous crises, such as 9/11 and hurricanes, people do return to big metro areas eventually. While the work-from-home policies may provide more flexibility to home buyers, if home prices decline as a result of out-migration, increased affordability will lure buyers back in. Big cities are likely to remain centers of employment in the future.”