Key Takeaways:
- Gain of 1.4% in August is lowest since April
- Top 19 metros have yearly price increases ranging from 13% to 33%, led by Phoenix
- Condominium price inflation is 2x-3x lower than for single-family homes in the major metros
By Manuel Gutierrez, Consulting Economist to NKBA
Prices of single-family homes continue to rise, although the August monthly increase of 1.4% was the lowest since April when prices were up 1.3% for the month (Figure 1).
However, on an annual basis home appreciation continues to be up sharply, 19.7% higher than last year. Prices have been rising steadily month- after-month for more than a year. After several months hovering around 4.5% early last year, prices climbed by 4.9% in July, beginning the current monthly runup.
Home price appreciation appears to be moderating, although is still up nearly 20% year-over-year.
Strong consumer demand for housing, combined with demand from investors who are purchasing homes to either “flip” the houses after some improvement, or enter the rental market, are among the underlying forces for rising prices. Additionally, the low supply of homes for sale and builders’ inability to produce more homes because of labor and material shortages, are also big contributors to the rise. This is truly a “perfect storm” situation.
Fast rising house prices are seen throughout the nation. Figure 2 displays the changes for the top 19 metropolitan areas, which range from a high of 33% in Phoenix to a low of 13% for Chicago.
It comes as no surprise regarding Phoenix. This metro posted the largest population growth of all metro areas over the last decade. Growth emanates from it being a favorite retirement community. Phoenix is also attracting tech companies and people moving from more expensive areas, such as California.
Other cities with high house price inflation are San Diego and Tampa, each posting year-over-year gains of 26%.
At the other extreme, metro areas posting below average house price increases are concentrated in the Midwest. Along with Chicago, the metros of Minneapolis and Cleveland are also near the bottom.
An alternative to a single-family home purchase is a condominium. Prices for these units have risen much less rapidly. Condominiums are more prevalent in larger cities with greater concentration of people in a given area. Also, there are more condominiums in retirement or vacation areas, such as Florida.
However, the Case-Shiller index, the most commonly used measure for home prices, provides condominium data only for the five metro areas shown in Figure 3. For the vast majority of metros, there isn’t a sufficient number of condominium sales to enable Case-Shiller to calculate a reliable index.
However, for these five metro areas, as can be seen in Figure 3, condominium price increases lag those of single-family homes.
Only in Los Angeles, where condo prices are up 13% in August, do they approach the market increase for single-family homes. For the other four metro areas, single-family prices have risen 2x-3x as fast as that of condos.
In three of the metro areas, San Francisco, New York and Chicago, condo prices have increased less than a third as much as the corresponding increase in single-family homes.
The relatively low appreciation in condo prices for these markets are simply because of lower consumer demand for them. This is largely due to changes in consumer preferences, caused by the pandemic’s social distancing mindset which have led consumers to seek more isolation and avoid community living as much as possible.
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