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Case-Schiller Index: Update

Home Price Growth Rate Steadily Climbing

Home prices rose at their fastest rate in two years, according to Case-Shiller Home Price Indices. The National Home Price Index for August showed 5.70 percent home price growth year-over-year as compared to 4.80 percent growth reported in July.

Analysts said that millennials seeking to purchase homes and the continued exodus from large urban areas propelled rising home prices. Home prices grew fastest in the West and Southeastern regions.

While home prices grew moderately before the pandemic, high unemployment has not impeded rapid home price growth since the pandemic. Low mortgage rates and more demand for homes overcame consumers’ concerns about jobs and the economy. Analysts said that rapidly rising home prices could benefit homeowners struggling with mortgage payments as additional equity could provide more cash for relocation.

20-City Home Price Index: Three Top Cities

Home prices rose at the fastest pace in Phoenix  Arizona at 9.20 percent year-over-year. Seattle, Washington reported a home-price growth rate of 7.00 percent; Charlotte, North Carolina reported year-over-year home price growth of 6.00 percent. In July.

The COVID-19 pandemic caused many workers to switch from commuting to their jobs to working from home. Home-buyers also looked for homes in less-populated areas. 16 of 19 cities reported in July’s 20-City Home Price Index reported a faster pace of home price growth than in June. Detroit, Michigan did not report home prices for the July 20-City Home Price Index.

Homeowner migration from congested cities to suburbs was confirmed by Robert Dietz, the Chief Economist at the National Association of Home Builders, who said: “…builders in other parts of the country have reported receiving calls from customers in high-density markets asking about relocating.” Building single-family homes in all price ranges would help ease the shortage of homes.

Short Supply of Single-Family Homes Continues to Fuel Rising Home Prices

Continued shortages of homes for sale and rising demand for homes caused home price gains in June. Analysts said that while low mortgage rates encouraged buyers to enter the market, overall housing market conditions did not contribute to affordable home prices.

Analysts expressed concern that potential buyers were calculating affordability based on principal and interest payments and were not considering other costs of homeownership including, taxes, hazard insurance, and mortgage insurance premiums that could be added to their monthly loan payments.

High home prices, COVID-19and ongoing unemployment, and decreasing growth in rental rates are obstacles to continued growth in home prices. Quarterly data published by the Federal Reserve Bank of St. Louis shows how average home prices have fallen in 2020. The national average price of a new home in the first quarter of 2020 was $383,000; in the second quarter of 2020, the average price of a new home was $368,000.

Average New Home Prices Fall in All U.S. Regions

Average regional U.S. home prices fell from the first quarter to the second quarter, according to the Federal Reserve Bank of St. Louis. In the Northeast, the average price of a home fell to $622,000 from 645,200. The average price of a new home fell from $337,000 to $319,200 in the Midwest and fell from $325,300 to $315,500 in the South.

The West had the highest average new home price in the second quarter of $459.900, but this was lower than the average new home price of $471,300 in the first quarter of 2020.

View Current Mortgage Rates Jan, 22, Fri, 2021

Low Mortgage Rates

Today, mortgage rates are near historic lows, with rates having actually dipped to their lowest-ever level three times in the last couple of months.

With mortgage interest rates as low as they are now (2.88% for a 30-year fixed mortgage as of the time of this writing in October 1, 2020), competition for housing is high. This is even more true because of the current tight inventory situation. Inventory is short all across the country and is especially tight in certain parts, including the Northwest.

Bidding wars are on the rise once again, which will have a direct impact on price increases throughout the remainder of 2020.

Right now, the average home price in the US is $256,600. According to Zillow, that’s a 5.1% increase from the same time last year. According to Zillow, the housing market across the country is still “very hot” right now.

Mortgage rates have dipped over the past few months and are expected to remain extremely low, which may help boost sales over the coming months. Experts anticipate the 30-year fixed-rate mortgage rate to remain around 3% throughout the remainder of the year.

Federal Housing Finance AgencyReports Highest Home Price Growth Rate Since 2006

August readings reported by FHFA also showed higher home prices. The agency, which oversees mortgage giants Fannie Mae and Freddie Mac, reported year-over-year home price growth of 1.50 percent from July to August; home prices for homes mortgaged or owned by Fannie Mae and Freddie Mac rose by eight percent annually.

FHFA home price data is tracked nationally by census divisions, states, and metro areas. Information is also available by county and zip code.

Home prices have long been fueled by limited supplies of available homes, and while demand for homes fell over the first few weeks of the spread of the coronavirus throughout the U.S., demand has started increasing recently.

Analysts had mixed opinions on how the coronavirus outbreak could impact home prices; if companies and jobs reopen after the virus has passed, housing markets are expected to recover. Because the ultimate length and impact of the pandemic remain unknown, it’s currently impossible to know how housing markets will be impacted.

A Word About Case-Shiller Index Flaws

It should be noted, however, that the Case-Shiller Index has some shortcomings. For instance, the index is based on changes in home prices of a single home through successive sales. This means that to calculate its home price index, the Case-Shiller searches for sales of the same home over a period of time and calculates the difference in contract price.

This methodology can distort the home price tracker downward during times of weak economy because there is no distinction made for homes sold in foreclosure or as a short sale.

Another distortion in the Case-Shiller Index is that the model neglects all home types that are not of type “single-family residence.” This means that multi-unit homes and condominiums are excluded from the Case-Shiller Index model.

In some markets, such as Chicago and New York City, condominiums account for a large percentage of overall sales.

Lastly, the Case-Shiller Index is published with a “lag,” which renders it useless to buyers and sellers of Bellevue in search of real-time, relevant data. The most recent Case-Shiller Index is published with a 60-day delay, so the report issued in August only covers home sales through June.

In 2019, job growth has averaged 165,000 per month. Data that’s two months old does little to help us today.

Making sound real estate decisions is about having timely, relevant data at-hand when it’s needed. The Case-Shiller Index fails in that respect. It’s good for highlighting the U.S. housing market on the whole, as it existed in the past. For real-time market data, though, you’ll want to talk with an active real estate agent.

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