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 April.
Case-Shiller’s National Home Price Index showed little change in April as home prices rose by 0.10 percent to a year-over-year average of 4.70 percent. The 20-City Home Price Index showed corresponding home price growth of 0.10 percent to 4.00 percent year-over-year.
Ongoing influences on home price growth before the coronavirus pandemic included short supplies of available homes coupled with high demand for homes and low mortgage rates. While closures and shelter-at-home restrictions in many markets slowed buyer and seller activity, real estate analysts said that home-buyer desiring to buy larger homes to accommodate working at home helped maintain home prices. Homeowners relocating to less congested areas also helped with stabilizing home-price growth in April.
Case-Shiller 20-City Index: Home-Price Growth Rates Increases in 12 Cities
The three top cities in April’s 20-City Home Price Index were Phoneix, Arizona with a year-over-year home price growth rate of 8.80 percent; Seattle, Washington reported 7.30 percent yearly growth in home prices. Minneapolis, Minnesota reported home-price growth of 6.40 percent.
Home price growth rates increased in 12 of 19 cities reported. Detroit Michigan did not report to the 20-City Index for the second consecutive month. The coronavirus pandemic continued to grow and spread throughout the U.S during May; some states that opened their economies quickly are now reconsidering as Covid-19 cases rise at faster rates. Changing data and emerging responses to the spreading virus are expected to impact home price growth in the coming months according to whether the coronavirus spreads or diminishes.
FHFA Home Price Index: Home Prices Increase Despite Coronavirus Pandemic
The Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, reported 5.50 percent home price growth year-over-year in April compared to the March reading of 5.90 percent year-over-year growth. FHFA 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.
Stable Growth in Home Prices
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 (3.07% for a 30-year fixed mortgage as of the time of this writing in July 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.
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.
Have Questions About Mortgages?
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.