Year-over year gains of 7% are the highest since 2013-2014.

By Manuel Gutierrez, Consulting Economist to NKBA

COVID-19 restrictions have unexpectedly boosted demand for housing, both for primary residences and second homes. This has resulted in an increase in house prices by 1.2% for September as well as August.

House prices had been relatively unchanged for a long stretch, from July 2019 through January 2020. During that period, the average monthly increase was  0.4%. Since then, it has slowly risen, culminating in the recent 1.2% gains for August and September. The data for prices of houses sold are collected and calculated by Corelogic, which releases it as the Case-Shiller House Price Index.

Rising home prices are a boon to home sellers, but put pressure on those looking to buy. Higher prices naturally shut some households out of the housing market, although that has not yet recently been the case to any extent. While the housing affordability index, as measured by the National Association of Realtors, has declined over the last few months, it still stood at a healthy 159.6 in September. A level of 100 is the minimum ratio needed for the average household’s median income to be sufficient to cover the price of a median home.

September’s increase has resulted in home prices that are now 7% above levels of a year ago. This is the highest home price appreciation since 2013-2014, when year-over-year gains hovered around 10%.

Supply and demand for housing always differs by region or city. This not only results in different average prices per area, but the percentage gain or loss during a given period.

Among the top 20 metropolitan areas for which data is collected in the Case-Shiller index, year-over-year house price increases range from a low of 4.7% in Chicago to a high of 11.4% in Phoenix. Home price trends for these metros are shown in the chart below. Those identified fall within the highest or lowest levels of appreciation. The other metro areas are not identified but are shown by the gray lines in the chart.

The charts demonstrate that although metro area home prices fell at the onset of the pandemic, they have since recovered in all areas.

Condominium Price Appreciation Lags Single-Family Homes

The Case-Shiller index also collects house price data for condominiums that are sold, but that data is limited to five metropolitan areas. These are metros with a large number of condominium sales transactions, enabling Corelogic to perform reliable calculations on house price changes.

Condominium price appreciation in each of the five metro areas is lower than that of single-family houses. In fact, condominium prices in two of the five metros have actually fallen. The average prices in San Francisco are 2.3% lower than a year ago, with New York down by 1.1%.

Although condo prices have risen in the other three metropolitan areas as the chart below indicates, the gains are not at the levels enjoyed by single-family homes in the same areas.