U.S. S&P CoreLogic Case-Shiller Index Continued to Accelerate in Early Days of the Pandemic

Within the first two weeks of COVID-19, annual home price growth in March 2020 reached 4.35%

By Selma Hepp Housing Affordability, Real Estate

In March this year, home price growth continued to accelerate, with the  U.S. S&P CoreLogic Case-Shiller Index reporting the largest year-over-year increase since December 2018 and a month-to-month increase of 0.85%, the fastest pace in 10 months. The annual increases showed steady strengthening for eight consecutive months.

Figure 1:  Home Prices Increased at Fastest Pace in Over a Year

With the March index covering the first quarter of the year, the index is providing a glimpse into the coronavirus (COVID-19) pandemic and its impact on the housing market and overall U.S. economy. So far, acceleration of price growth into March confirms strength of home buyer demand coming into the pandemic, particularly among first-time millennial buyers.

Similarly, the latest Census Housing Vacancy and Homeownership Survey shows homeownership rate continued to climb in the first quarter of 2020, and at 65.3%, reached the highest level in seven years. The increase was primarily driven by a jump in the homeownership rate among householders age 29 and younger. Historically low mortgage rates have been in a big boost in recent months, lowering the monthly mortgage payment on a median-priced home as much as 10% compared to last year. Going forward, the standstill housing markets have experienced as a result of shelter-in-place orders and concerns around the pandemic will likely have some impact on the strength of the home price growth.

Among the 20 urban areas included in the U.S. S&P CoreLogic Case-Shiller Indexes, Phoenix maintained the highest home price growth acceleration rate for the 10th consecutive month, with an annual increase of 8.16%. Seattle continued to follow in second place with a year-over-year growth acceleration of 6.89%.  

Figure 2: Home Price Growth Accelerated in Seattle

Conversely, New York (2.07%) and Chicago (1.54%) continued to report the smallest 12-month gains of the 20 metros (however, price growth in both metros did accelerate compared to last month). While Boston and San Francisco experienced slowing of annual price growth compared with February, all other metro areas experienced price growth acceleration in March.   

With the pandemic already impacting the labor markets and housing activity across the country’s metro areas, local home prices are likely to follow, on a slightly different path. Some markets that were virus hotspots and experienced large job losses may see relatively faster declines in price growth.

Figure 3: 10- And 20-City Home Price Growth Returned to Late 2018 Levels

For example, the month-over-month price index in the New York metro has declined from 0.48% growth (January to February) to 0.2% growth (February to March). It is the only region where monthly growth has decelerated since February.

Affordability remains the main driver of housing demand. Homes sold in the lower one-third of the price distribution continuing to experience relatively stronger appreciation (up 7.03% on average), compared to both middle (up 5.58% on average) and higher-priced homes (up 3.85% on average).

Compared to a year ago, strongest growth in the lowest price tier was in Phoenix (up 10.59%), but Seattle (up 10.2%) and Tampa, Florida (up 9.88%) followed closely. Los Angeles experienced the fastest growth in the middle tier (up 9.06%) while Phoenix saw the fastest growth in the high tier (up 7.59%).

As shelter-in-place orders are slowly being lifted and local economies tentatively open, early data suggests there might be a rebound in housing activity in May, particularly in parts of the country that have not been hotspots during the pandemic or where local economies have not been severely disrupted. Nevertheless, with next month’s data covering the peak of the pandemic, home price growth is likely to experience some slowing.

The strength in home price growth is a testament to pent up demand among millennials, who are viewing historically low mortgage rates and the lull in market activity as a unique opportunity to purchase their first home. While the pandemic has introduced much uncertainty about economic outlook, the strong demand leading up the outbreak suggests there are still many buyers looking to buy a home and are merely waiting out for the economy to open up. Recent data suggests home buying activity is picking up – which, amid low for-sale inventory levels – will continue to prop up home prices.

© 2020 CoreLogic, Inc. All rights reserved.

*Due to the COVID-19 crisis, S&P Dow Jones Indices and CoreLogic are unable to generate a valid March 2020 update of the Detroit S&P CoreLogic Case-Shiller indices for the May release; thus, Detroit was excluded from the analysis.