U.S. Case-Shiller Index Continued to Climb in May, Albeit at Slower Pace

The pandemic may have started to slow home price growth in May, up 4.46%, less than two months prior

By Selma Hepp Housing Affordability, Mortgage Finance

Strength of home price growth amid nationwide shutdowns in May suggests housing demand may be one of the brightest sectors of the economy during the pandemic. With a 4.46% increase in the national Case-Shiller index, the home price index reached another new high since the current rising trend began in December 2018. Nevertheless, the month-to-month increase of 0.65% is the slowest monthly increase since the coronavirus (COVID-19) pandemic took hold across the country in March.

After a relatively short lull during April’s shutdowns, housing market activity picked up pace vigorously in May. Home buyers, particularly first-time buyers, remained motivated by continued historical declines in mortgage rates. At the same time, availability of homes declined drastically and the very slim inventory of homes for sale ensured home price growth remained steady during challenging economic times. Still, the index covering transactions from March to May 2020 reflects some buyer hesitancy, which ultimately led to more negotiations and slower price growth in May. But, further declines in mortgage rates was a strong motivator for buyers, many of whom saw their new monthly mortgage payments dip below where they would have been at the same time last year.

While the 10- and 20-city composite indexes continue to experience annual growth, both show monthly gains slowing at the same pace—down about -0.22% since April. This is the fastest decline recorded for the 10-city index since July 2019, and the fastest for the 20-city index since March 2019. While April’s slowdown in monthly index gains mostly impacted the 10-city index, which accounts for some of the larger metro areas that have been severely affected by COVID-19, May’s monthly decline suggest slowdown is spreading to smaller metro areas.

Figure 1: 10- And 20-City Home Price Growth Starting to Feel the Pandemic
Source: S&P CoreLogic Case-Shiller Indices, not seasonally adjusted (July 28, 2020 release)
© 2020 CoreLogic,Inc., All rights reserved.

Phoenix, one of the areas included in the 20-city S&P CoreLogic Case-Shiller Indexes, maintained its home price growth rate for the 12th consecutive month with an increase accelerating to 9%, compared to last May. Seattle again remained in second place, showing home price growth at 6.8% year over year. Tampa, Florida, moved to the third top-ranking city (up 6%), followed by Cleveland (up 5.7%), which outpaced Minneapolis, San Diego and Charlotte, North Carolina. The 12-month home price continues to lag in New York (2.2%) and Chicago (1.3%), though New York’s growth pace picked up some since March. Las Vegas, down 2.2 percentage points to 4.2% annual growth, experienced the largest year-over-year decline in price growth.

Figure 2: More Than Half of the Metros Slowed Since March
Source: S&P CoreLogic Case-Shiller Indices, not seasonally adjusted
(July 28, 2020 release).
© 2020 CoreLogic,Inc., All rights reserved.

In comparing the changes in price growth since the onset of the pandemic, San Francisco’s monthly gains have dropped the most (by almost 2 percentage points) since March. In all, 10 of the 20 metro areas experienced slowing home price growth since March.

Figure 3: Changes in Monthly Home Price Growth Since March Vary
Source: S&P CoreLogic Case-Shiller Indices, not seasonally adjusted (July 28, 2020 release)
© 2020 CoreLogic,Inc., All rights reserved.

The future of home prices, and the potential impact of business closings on unemployment, is still ridden with uncertainty, especially in light of the recent resurgence in COVID-19 cases. With unemployment reaching 14.7% in April, and remaining double-digit since, the rate is anticipated to remain elevated, particularly in areas where local economies have been dependent on sectors hit hard by the pandemic. According to the CoreLogic latest HPI forecast, many of the cities included in the 10-city composite index are forecasted to experience a relatively larger home price decline in the next 12 months.

On the other hand, limited inventories may be the biggest supporter of future price growth, particularly in the lower one-third of the price distribution where the wave of millennial buyers is most likely to make a mark.

The price growth of the lower one-third of the price distribution continued to accelerate at a speedier pace—up 6.4% year over year on average—compared to the average growth of 5.03% among medium-tier prices and 3.57% among highest-tier prices.

Phoenix and Tampa, Florida, continue to maintain the top two spots for home price growth in lowest price tier, up 10.3% and 10.2%, respectively. Seattle, Boston, Atlanta and Minneapolis all follow closely with gains above 7.5%. However, even among lower one-third homes, home price gains have slowed since March, particularly in Boston and New York.

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

© 2020 CoreLogic, Inc. All rights reserved.