Home prices grew 5.9% year over year in August, marking the highest year-over-year gain since June 2018, according to the latest Home Price Index (HPI) report from CoreLogic.
The big annual jump was precipitated in large part by the historically low supply of homes for sale, which has continued to diminish even further as the pandemic drags on. For-sale inventory dropped 17% year over year in August, leading to the escalated price appreciation, up annually from 3.5% in August 2019.
Prices also grew month over month, rising 1.0% from July. And with market fundamentals strong and competition for sparse supply high, prices appear to be solidly pointed upward in the near term. Builder sentiment in the sizzling market is soaring, which should lead to heightened construction, said Frank Martell, president and CEO of CoreLogic.
“Consumers who have not been as financially impacted by the ongoing economic pressures are taking advantage of low mortgage rates to either break into the market, upgrade their living situations or purchase second homes and investment properties,” Martell said. “With heightened activity putting a strain on the current for-sale inventory, strong demand should help spur new homebuilding activity.”
Among price tiers, competition remains strongest in the entry levels.
“The imbalance between homebuyer demand and for-sale inventory is particularly acute for lower-priced homes,” said Frank Nothaft, CoreLogic’s chief economist. “Because of this imbalance, homes priced more than 25% below the median were up 8.6% in price over the last year, compared with the 5.9% price increase for all homes.”
Prices in the low- to middle-price tier rose 7.3% year over year, while the mid- to moderate-price tier saw price gains of 6.7% annually and the highest price tier posted a price increase of 5.6%. Growth rates for the two lower price tiers are the highest since 2018, while growth rates for the two higher price tiers are the highest since 2014.
Don’t expect the rapid price growth to last through next year, however. CoreLogic expects a greater availability of new and existing homes on the market as builders race to meet the market need; coupled with elevated unemployment denting buyer demand, the HPI is forecast to downshift in early 2021. CoreLogic hence predicts annual price gains will slow to 0.2% by next August, marking the lowest annual increase in home prices since January 2012.