After eight years of steady house price increase, the great housing boom in the United States continues unabated. Continued low-interest rates and the government’s huge stimulus initiatives to buffer the impact of the pandemic have boosted the economy. The market’s limited supply of houses has added to the upward pressure on housing prices.
The S&P/Case-Shiller seasonally-adjusted national home price index increased by an incredible 19.7% (13.61 percent inflation-adjusted) in the year to July 2021, a dramatic acceleration from the previous year’s 4.85 percent gain and the largest year-over-year increase ever recorded.
The Federal Housing Finance Agency recently released data showing that its seasonally-adjusted purchase-only U.S. house price index increased by 19.17 percent y-o-y in July 2021 (13.11 percent inflation-adjusted), significantly higher than the previous year’s 6.92 percent growth and the highest annual growth on record.
“As millennials enter their prime house-buying years, renters eager to escape increasing rents and deep-pocketed investors fuel demand, home prices continue to rise,” said Frank Martell, President, and CEO of CoreLogic. “On the supply side, chronic underbuilding, particularly of inexpensive stock, is also to blame.” Without more strong incentives for builders to add additional units, this shortage is unlikely to be rectified in the next 5 to 10 years.”
According to the National Association of Realtors, the total number of existing homes offered for sale declined 13.4% year over year to 1.29 million units in August 2021. The inventory of existing residences was only 2.6 months, down from 3 months a year ago and 4 months two years ago.
The housing price cycle in the United States
The previous housing bubble burst in the second quarter of 2006. Between Q2 2006 and Q4 2011, the S&P/Case-Shiller composite-20 house price index dropped 33.3 percent. Among the twenty major metro areas, Phoenix had the highest reduction (-54.7%), followed by Miami (-50.5%), Detroit (-43.3%), San Francisco (-40.8%), Los Angeles (-40.1%), and San Diego (-40.1%). (-39.7 percent ).
Home sales are declining across the country, owing to a lack of supply.
According to the National Association of Realtors, existing-home sales (which include single-family homes, townhomes, condominiums, and coops) were at a seasonally adjusted annual rate of 5.88 million units in August 2021, down significantly by 1.5 percent from a year ago (NAR).
Region by region:
Existing house sales in the Northeast declined by 2.7 percent year over year in August 2021, to an annual rate of 730,000 units. Existing-home sales in the Midwest declined by 2.1 percent year over year in August 2021, to 1.37 million units. Existing-home sales in the South fell by 0.8 percent to 2.55 million units in August 2021, compared to the same month the previous year.
In August 2021, existing house sales in the West fell 1.6 percent year over year to 1.23 million units.
According to the National Association of Realtors, first-time homebuyers accounted for around 29% of all sales in August 2021, down from 30% the previous month and 33% a year before. Furthermore, all-cash sales accounted for 22% of all transactions in August 2021, up from 18% a year earlier. Individual investors or second-home purchasers, who account for a large percentage of cash sales, bought 15% of homes in August 2021, up from 14% the previous year.
