I said last month the housing market was cooling with the fall weather, but maybe not yet. Because housing prices are still rising in double digits, although they may be leveling off.
The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index of single-family, same-home price changes, covering all nine U.S. census divisions, reported a 19.8 percent annual gain in August, remaining the same as the previous month. It’s a 3-month average for 20 metropolitan areas, so in some cities’ prices are rising even faster.
Phoenix led the way with a 33.3 percent year-over-year price increase, followed by San Diego with a 26.2 percent increase and Tampa with a 25.9 percent increase. Eight of the 20 cities reported higher price increases in the year ending August 2021 versus the year ending July 2021.
How about that for some irrational exuberance in the housing market? Are we seeing a repeat of the housing bubble, when prices rose double-digits in the early 2000s and again in 2014 (see above graph)?
I don’t think so. While Fed Chair Greenspan was pushing interest rates close to zero then to finance GW’s wars on terror, credit conditions today are much tighter and lenders no longer offer so-called liar loans that hid the real interest rate.
It’s not good news for those having difficulty in finding affordable housing, given the low for-sale inventory. But interest rates still remain at record lows, with 30-year conforming and super-conforming fixed rates around 3.0 percent.
Will housing prices eventually stabilize? Only when enough residences are built to satisfy the pent-up demand that came from a steep drop in new housing construction since the end of the Great Recession.
The Commerce Department said sales of new single-family homes surged 14.0 percent to a seasonally adjusted annual rate of 800,000 units in September, so there’s some hope for increasing supply. But sales were as high as 1,400,000 per year during the height of the housing bubble.
Unfortunately, Calculated Risk reports that just 36,000 new homes were available for sale in September, while106,000 new homes have yet to be completed. That leaves a 0.5- month inventory, close to a record low, when 3 to 4 months was the norm.
Existing-home sales also rebounded in September after seeing sales wane the previous month, according to the National Association of Realtors®. Each of the four major U.S. regions witnessed increases on a month-over-month basis.
The NAR reported total existing-home sales,1 https://www.nar.realtor/existing-home-sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, rose 7.0 percent from August to a seasonally adjusted annual rate of 6.29 million in September. However, sales decreased 2.3 percent from a year ago (6.44 million in September 2020).
"Some improvement in supply during prior months helped nudge up sales in September," said Lawrence Yun, NAR's chief economist. "Housing demand remains strong as buyers likely want to secure a home before mortgage rates increase even further next year."
“The housing sector is clearly settling down,” said Yun, who described the surge of home buying in late 2020 and early 2021 as an anomaly.
Home sales last peaked in 2020 at the beginning of the pandemic, but inventories are now at historic lows. Housing prices began their current steep climb at the same time. Unless builders and governments find ways to build more affordable housing, the housing shortage could continue for years and leave a whole generation wanting a home.
Harlan Green © 2021
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