Posting Record Growth for June 2021
- Home prices grew at a 19.1% year-over-year pace in June, reaching a new all-time high
- Home price growth has not only been strongly positive but has accelerated month-over-month for 12 consecutive months through June 2021
- Residential real estate prices are taking their cues from exceptionally supportive market conditions, remaining subject to strong demand, slow-growing supply, and a low-interest-rate environment
The S&P CoreLogic Case-Shiller Home Price Index, an aggregate of home price trends across 20 U.S. metropolitan statistical areas, continued its meteoric climb in June. Year-over-year price growth posted a new record at 19.1%, surpassing all recent outperformance as well as again topping the peak pace of the pre-2008 housing bubble (17.1%; August 2004).
Home price growth is supported from all corners of the market, including strong homebuying interest, weak supply growth to meet that demand, and household balance sheets that still boast high savings rates and rising wage growth. Existing single-family home sales resumed their upward climb through the summer months of 2021 after cooling modestly through the first half of the year, indicating that buyers are not yet deterred by skyrocketing prices. There appears to be no clear circuit breaker for the current housing market environment.
Commodity prices related to homebuilding, such as lumber prices, have reverted toward trend after spiking on supply bottlenecks earlier this year. But employment in construction across the U.S. remains slow-growing, capping homebuilders’ ability to meet rampant demand. As a result, new home construction offers only limited potential to provide relief through the normal Spring & Summer buying seasons even in 2022 for those existing homeowners that may still be looking to upgrade or expand into a newly built home.
Strong home price appreciation provides excellent support for existing homeowners’ confidence, as the assets side of their personal balance sheets strengthen. Refinancing activity to take advantage of lower interest rates continued at a pace near historic highs through 2021Q1 (latest full-quarter data available). But residential mortgage lending standards have only recently begun to loosen after tightening dramatically in response to the pandemic-induced recession in 2020, suggesting that homebuying activity does not yet have the air of careless borrowing seen during the housing bubble leading up to the 2008 recession. Affordability will be compromised for homebuyers hoping to enter the market, and some overextension among them is likely. But with employment continuing to rebound and wages taking an evolutionary step forward, a post-pandemic period of sustained economic growth in the U.S. will allow the housing market to ease into equilibrium, where price growth eventually stabilizes and new homeowners are able to enjoy the financial cushion of home equity garnered through the current run of price increases.
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