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Case-Shiller: June Home Prices Rise As Affordability Crisis Grows

Case-Shiller: June Home Prices Rise as Affordability Crisis Grows

Summary: Despite what’s been happening with the coronavirus pandemic, the real estate market across the nation appears to be holding steady. According to recent Case-Shiller data, home price growth was relatively healthy in June.

According to the National Case-Shiller Home Price Index for June, U.S. home prices rose 4.30 percent year-over-year, which was unchanged from May’s year-over-year home price growth rate. Home prices are expected to continue growing through 2020 as businesses reopen and COVID-19 restrictions ease.

Case-Shiller’s 20-City Home Price Index for May showed Phoenix, Arizona held the top spot with 9.00 percent year-over-year growth; Seattle, Washington followed with 650 percent growth in home prices. Tampa, Florida maintained its third-place position with 5.90 percent year-over-year home price growth.

Five of 19 cities reporting in the 20-City Index showed a higher rate of home price growth. Wayne County, Michigan, which includes the Detroit metro area, did not provide information for June’s 20-City Home Price Index.

Craig Lazzara, managing director and global head of investment strategy at S&P Dow Jones Indices, wrote: “As has been the case for the last several months, home prices were particularly strong in the Southeast and West and were comparatively weak in the Midwest and Northeast.”

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 Sep, 26, Sat, 2020

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 (2.99% for a 30-year fixed mortgage as of the time of this writing in August 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 $248,800. According to Zillow, that’s a 4.1% increase from the same time last year. According to Zillow, the housing market across the country is still “very hot” right now.

Prices dipped in Seattle in 2019, which is traditionally one of the hottest housing markets in the country. In Seattle, prices actually dropped 3.8% in 2019, which put some relief on spiking home prices in the city.

However, 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 under 4% throughout the year.

FHFA Home Price Index: Home Prices Increase Despite Coronavirus Pandemic

The Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, expects home prices to continue rising as real estate markets return to normal. With spring and early summer home sales impacted by coronavirus-related restrictions, Lynn Fisher, deputy director of research and statistics for FHFA, expected sales to pick up during the summer months.

As coronavirus infection rates increase, further restrictions and closings are anticipated and could negatively impact real estate markets and home prices soon.

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 June only covers home sales through April.

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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Do you have questions about mortgages that you want answered? Sammamish Mortgage can help. We are a local, family-owned company based in Bellevue, Washington. We serve the entire Pacific Northwest region, including Washington, Oregon, Colorado, and Idaho. We offer a wide variety of mortgage programs and products with flexible qualification criteria.  Please contact us if you have mortgage-related questions.

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