U.S. Case-Shiller Index Reverts the Slowdown in July to the Fastest Rate Since 2018

By Selma Hepp Housing Affordability, Mortgage Finance

Reflecting the “perfect storm” in the housing market, home prices jump 4.78% in July

As the economy began to reopen in May, a convergence of positive drivers for the housing market led to a surge in home buying activity and increased competition among buyers. The national Case-Shiller Index jumped 4.78% in July, reaching a new high and increasingly at the fastest rate since November 2018. July’s sharp increase also reflects a reversal of a slowdown from the prior two months. The month-to-month index also jumped, increasing 0.78% from June, and also reversed monthly slowing trends reflected in May and June. Comparatively, at the start of the pandemic, monthly increases peaked at 0.99% from March to April.

Slow home buying activity in April and May (critical months during home-buying season) while stay-at-home orders were in place, bounced back in July. This leads to a notable increase in the number of home purchase contracts signed and outpaced last July’s levels of home sales. Nevertheless, while buyers were coming out in droves, motivated by record-low mortgage rates and the need for more space, many sellers opted to not put their homes on the market, leading to historically low levels of for-sale inventory. The convergence of these factors allowed for home price growth to continue strong acceleration despite the economy facing continued uncertainty and high levels of unemployment. The summer was also characterized by increased demand for second homes, which led to quickening of home price growth among higher-priced homes, reaching pre-pandemic levels.

The 10- and 20-city composite indexes also increased pace, up 3.31% and 3.94% year-over-year, respectively, both up about 50 basis points from June increases. And while the 10-city index still lags slightly behind the 20-city index, July’s acceleration is an encouraging sign for cities that were COVID-19 hotspots and experienced relatively larger slowdown in the early months of the pandemic. The 10-city 3.31% increase is the sharpest increase since late December.

Figure 1: Home Price Growth Resilient Despite the Pandemic
Source: S&P CoreLogic Case-Shiller Indices, not seasonally adjusted (September 29, 2020 release)
© 2020 CoreLogic,Inc., All rights reserved.

Phoenix, a city included in the 20-city Case-Shiller Index, remains the city with the fastest-growing home price growth for the 13th consecutive month, up 9.2% year over year in July – and up slightly from June. Seattle remained in the second position for fastest home price growth at 7% year-over-year growth. Last July, home prices in Seattle were down 0.6% on a year-over-year basis. It is the only city with such sharp reversal in trends from last year.

Charlotte, North Carolina, was the third top-ranking city (up 6%), followed by Tampa, Florida (up 5.9%) and Minneapolis (up 5.4%). The ranking of cities with the fastest home price increases still remains consistent since the onset of the pandemic.

The 12-month home price index is positive in all cities in the index, though Chicago (up 0.8%) and New York (up 1.3%) continue to experience relatively slower price gains.   

Figure 2: Changes in Monthly Home Price Growth Since March Vary
Source: S&P CoreLogic Case-Shiller Indices, not seasonally adjusted (September 29, 2020 release)
© 2020 CoreLogic,Inc., All rights reserved.

In comparing the changes in price growth since the onset of the pandemic and when home price growth peaked in April, eight of the 20 metro areas showed slowing home price growth from April to July, down from 11 metros in June. Monthly gains in Las Vegas have had the fastest slowing of prices, by 1.34 percentage points, followed by Minneapolis’ 1.15 percentage point decline. In June, San Francisco led with fastest slowing of home prices, but price growth has improved in July. Los Angeles and Washington have posted the strongest pickups in home price growth since April.   

With home prices reaching new peaks, the highest increases since previous peaks have been in Denver, up 66%, and Dallas, up 57% from their prior peaks.

Figure 3: Home Price Growth Strongest in the Lowest Tier
Source: S&P CoreLogic Case-Shiller Indices, not seasonally adjusted (September 29, 2020 release)
© 2020 CoreLogic,Inc., All rights reserved.

By price tier, home price growth in the lower one-third of the price distribution are still experiencing competition, leading to an average annual increase of 6.7%. This is compared with the average growth among medium-tier prices (3%) and highest-tier prices (3.8%). Pressure on home prices in the lower one-third will likely persist as millennial buyers continue to dominate the home-buying market, but are also facing competition from single-family for-rent and other investors. High-price tiers showed the strongest rebound in price growth from the month before as demand in resort markets soared over the summer.

Phoenix, Seattle and Tampa, Florida, continue to be the top-three cities with the fastest growth in the lowest one-third of price distribution. All cities’ growth were 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 had slowing of home prices in the top-third, down 1% from last June. Lastly, Boston showed the fastest slowing in the lowest one-third of the price range since the onset of the pandemic.  

Housing market resiliency persisted throughout summer as traditional first-time buyers sought refuge in larger square footage and outdoor space, and buyers who had not been financially impacted by the pandemic sought second homes in resort, beach and mountain areas. Demand will likely keep home price growth strong over the coming months. And, continued price growth will help insulate homeowners’ equity position, which will be particularly helpful to owners who have been financially impacted by the pandemic and opted for a forbearance program. Those homeowners may be able to sell a home without going through a short sale or a foreclosure.

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

© 2020 CoreLogic, Inc., All rights reserved.