U.S. Case-Shiller Index Reaches a New Record High in June

Confluence of demographic and economic drivers continues to push home prices higher, up 4.29% in June

By Selma Hepp Housing Affordability, Mortgage Finance

Home price growth so far has remained largely resilient to the economic downturn caused by the pandemic. The national Case-Shiller Index climbed 4.29% in June, reaching a new high. The price index has been on a continuous rise since December 2018. However, the month-to-month index slowed, increasing 0.56% from May, compared to a 0.59% increase from April to May. The monthly increase peaked in April and has been slowing since.

Home buying activity has further accelerated following the initial shutdown-related pause and has consistently persisted despite the weighing economic uncertainties. While buyers are mostly driven by record-low mortgage rates, which have been generally falling after a slight jump in March, the pandemic may have accelerated the timeline for many millennials who were on the verge of buying. According to CoreLogic mortgage application data, millennial first-time buyers have led the resurgence in home buying in 2020 with all months, except April, with a year-over-year increase in the number of applications compared to last year. Decline in mortgage rates has also provided some relative affordability by reducing the monthly mortgage payment by about 10% compared to last year. In addition to the demand pressures, home price growth has been further bolstered by continued decline in for-sale listings since the onset of the pandemic, which have trended at 24% below last year levels.

The 10- and 20-city composite indexes also maintained the upward home price growth momentum, up 2.77% and 3.46% respectively. Still, the 10-city index, up 0.09% from May, continues to experience a more rapid price slowdown than the 20-city index, which was up 0.24% from May. This is now the second month of slowing home price growth for both the 20-city index and third month for the 10-city index.  

Figure 1

Phoenix, a city included in the 20-city Case-Shiller Index, continues to experience the fastest home price growth rate for the 13th consecutive month, up 9% year over year in June – the same rate as May. Seattle again remained in second place, showing home price growth at 6.5% year over year. Last June, home prices in Seattle were falling on a year-over-year basis. Tampa, Florida, remained as the third top-ranking city (up 5.9%), followed by Charlotte, North Carolina (up 5.7%), and Minneapolis (up 5.4%). The ranking of cities with the fastest home price increases has remained relatively consistent since the onset of the pandemic. The 12-month home price continues to lag in Chicago (0.6%) and New York (1.6%), the two areas that have been experiencing the slowest price gains since last summer.  

Figure 2

In comparing the changes in price growth since the onset of the pandemic this March, San Francisco’s monthly gains have experienced the fastest slowing of prices, by 2.3 percentage points. In June, 11 of the 20 metro areas showed slowing home price growth from March. On the other hand, Phoenix and Miami have posted pickups in home price growth since March by half a percent point or more.

Compared to May’s annual growth rates, Los Angeles; Charlotte, North Carolina; Washington and Dallas experienced relatively faster slowdown in home price increases.

Figure 3

By price tier, home price growth in the lower one-third of the price distribution maintained relatively higher pace—up 6.1% year over year on average—compared to the average growth of 4.7% among medium-tier prices and 3.2% among highest-tier prices. Pressure on home prices in the lower one third will likely persist as millennial buyers continue to dominate the home-buying market.

Phoenix, Tampa and Seattle continue to be the top-three cities with fastest growth in the lowest one-third, all up 9% or more from last year, though these three areas also have fastest growth in prices in the upper two-third of the price distribution. Only Chicago has seen slowing of home prices in the top-third, down 1.2%, from last June. Lastly, Charlotte, North Carolina, showed the fastest slowing in the lowest one-third of the price range since the onset of the pandemic.  

In looking ahead, while the housing market appears to be supported by strong fundamentals, it is uncertain if the preliminary post-lockdown mend in the economic activity will persist enough to re-employ the unemployed and restore their ability to continue paying mortgages. According to CoreLogic Loan Performance Insights Report for May 2020, mortgage delinquencies follow closely with the availability of jobs, and largest increases in delinquency rates were in New Jersey, Nevada, New York, Florida and Hawaii. All of these states are areas with relatively more leisure and hospitality jobs that have suffered due to the pandemic. As a result, these areas may experience weaker home price growth in the coming months. Fortunately, unlike the previous recession, the current increase in mortgage delinquencies is not only offset by better homeowners’ equity position, but more aggressive and timelier implementation of forbearance programs.

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

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