November’s price index is pacing at a year-over-year gain of 9.5%, as strong demand and limited supply continue.
By Manuel Gutierrez, Consulting Economist to NKBA
As demand for houses remains strong while inventories are still in short supply, the result is that there is no letup in the upward pressure on home prices. In November, the latest month for which data is available, the Case-Shiller house price index rose by 1.4% compared to October. Although this is less than October’s 1.7% increase, historically it is one of the highest monthly gains. Even in the heady days of booming home sales 20 years ago, it was rare to monthly increases above 1%.
On an annual basis, November’s price index was 9.5% higher than a year earlier. Home prices have been rising at a faster clip each month since the middle of last year. This can be seen in the uptick after the 2020 mark in Figure 1.
As restrictions placed on homes and businesses after the first pandemic wave were lifted, housing demand exploded. Many consumers saw the need to move away from smaller rental units in high-density cities, trekked to the ‘burbs and became first-time homeowners. Others either relocated or purchased second homes away from highly urbanized areas like New York City.
Since 2000, house prices have risen by 133% overall. However, as Figure 2 clearly illustrates, they did not move up in a straight line. Instead, there were three distinct stages, two of which saw substantial price increases, while the third resulted in a drop.
The seven-year period from 2000 to 2007 saw home prices appreciate by 85%, or roughly 12% per year.
This period was followed by a five-year decline from 2007 through 2012, when house prices fell by 26%.
Beginning in 2012, upward price movement resumed. Cumulatively, it has resulted in a gain of 70%, or an average of nearly 9% a year.
As expected, home appreciation has differed by metro area. As mentioned above, home prices rose 9.5% YOY nationally in November 2020, but gains in a composite of top metro areas was somewhat lower, at 9.1% (Figure 3)
This implies that home prices in smaller urban and rural areas have risen faster than the 9.5% national average. Although not shown on Figure 3, it should be noted that price increases in the 10 largest metros are even lower: 8.7% above the previous year.
Among the largest metros, shown in Figure 3, the latest annual price increases range from a low of 6.8% in Las Vegas to a high of 12.7% in Seattle.
Some of the largest metro areas, such as Chicago, Miami or New York, posted the lowest gains among those listed in the chart.
