Key Takeaways:
- Annual gain of 19.5 percent still near historic high
- Owning a home remains within reach of most consumers, but affordability has been declining
- Hottest states are in the west, led by Idaho, Utah and Arizona, with annual home price appreciation ranging from 36 percent to 28 percent
By Manuel Gutierrez, Consulting Economist to NKBA
The latest Case-Shiller index reveals that house prices moderated a bit in September, down three-tenths of a percent. However, at a 19.5 percent gain year-over-year, it’s still near a historic high. (Figure 1, right panel). Except for the two previous months, September’s increase is not only the highest since January 2020, but is also the third highest annual price increase ever.
Despite a moderation in monthly home appreciation, on an annualized basis home prices are up an astounding 19.5%.
Even the rapid price acceleration seen during the housing boom in the early 2000’s doesn’t compare with the current situation. By mid-year 2005 house prices were rising at a 14.5 percent rate, a historical high at the time but far below the 19 percent+ for each of the last three months.
Compared to the previous month, prices are up 1.2 percent (Figure 1, left panel), the lowest monthly increase in more than a year. House prices have increased at least one percent each month since September of 2020, but have been showing signs of moderation in each of the past four months.
Despite rising house prices, owning a home remains within reach for most households. However, overall affordability has been declining recently. Current homeowners though who are not planning to put their homes up for sale are clearly benefiting from the trend, which has increased their net worth. Many have used the opportunity – their new-found wealth – to remodel their homes, one of the reasons the kitchen and bath industry has been doing so well for a number of months.
Rising house prices translate into higher “home wealth” for the 65.4 percent of U.S. households who own a home. Over the 12 months ended in the second quarter of this year, the latest period of data available, total household wealth has increased by 18 percent. Wealth in the form of stock and financial markets are the primary force driving this increase, but rising house prices have driven an 11 percent increase in real estate wealth.
By state, Idaho is the hottest housing market. House prices there have exploded by 36 percent above a year ago (Map 1).
Idaho is followed by other Western states, including Utah, up by 30 percent, and Arizona, by 28 percent.
Other states with substantial house price gains include: Montana (+ 26 percent), Florida (+25 percent), and Maine and Nevada, each with gains of 24 percent.
At the other extreme, Louisiana and North Dakota have only enjoyed an annual price appreciation of 11 percent, with Maryland, Illinois and Alaska only slightly higher.
Recent trends have pointed to the desire by consumers to live in more remote areas, perhaps due to the work-from-home trend that offers such flexibility. The only mid-sized market making the top five in annual appreciation is Austin, All the others are smaller markets, including Boise City, Coeur d’Alene (35 miles east of Spokane), Twin Falls and Idaho Falls.
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