S&P CoreLogic will release the monthly Case-Shiller Home Price Indices on Tuesday, which track changes in housing prices across the nation. Economists surveyed by Bloomberg anticipate a 1.5 percent month-over-month increase and 19.20 percent year-over-year increase – slightly up from the prior month – for the 20-city composite.
Here’s what to look out for in the 9:00 a.m. report.
Supply chain snarls still dog supply – for now
One of the biggest drivers of high prices in the market has been low supply – the U.S. severely underbuilt homes following the 2008 housing crash. Plus, Millennials, the largest generation in the nation, began to move out of rentals and their parents’ homes and have entered the homebuying market – just as the pandemic shut down warehouses, factories and ports that supply housing materials to developers and construction companies. To top it off, remote workers from across the country flocked to previously affordable Southern cities like Phoenix and Tampa. The combination of those factors tanked supply and hiked prices.
But it appears as though that pattern may be shifting: the monthly supply of homes rose slightly in February and Zillow Research found that while inventory fell from January to February of 2022, it rose in March by 11.6 percent, the highest monthly gain since 2018.
So while a dearth of available homes may have continued to drive price growth in February, the worst is likely behind us in terms of dead-low supply.
Mortgage rate increases cool growth
Mortgage rates rose from 3.22 percent at the start of the year to 5.11 percent last week. The early impact of that increase may have been seen in February when some buyers who were eligible in January no longer qualified for mortgages at an average of 3.76 percent.
That may have slightly reduced demand. The National Association of Realtors saw February’s pending home sales decline 4.1 percent from the month prior. Existing-home sales fell by more than eight percent from the month prior.
February looks like a tipping point for still-low affordability and rising mortgages, as some people likely backed off slightly from a market that was simply too hot to handle for many buyers.
But, high interest rates could have an unintended consequence, motivating would-be sellers to stay put rather than negotiate a mortgage at a higher rate, further constricting supply.
All eyes on investors
A look at housing price charts over the last few decades prompts a question: are we in for another crash?
Optimists say no – the true value of a home is still accelerating because of extremely low supply and high demand. As long as there are buyers seeking homes, the homes will have value.
But pessimists say not yet – if prices sharply increase despite high mortgage rates, a constricting economy and increased supply, that could be a sign of speculation. Investor shares of home purchases are higher than they’ve ever been – 18.4 percent of home purchases in the fourth quarter of 2021 were made by investors. More investor activity could precede a crash because speculation artificially inflates home values and contributes to a steeper price drop once demand settles.
At the same time, many investors are buying to rent rather than to flip, a pattern that puts the market in a safer position.
The rent is too damn high
Investors buying to rent and Millennials priced out of the buying market comprise some of the factors that are also driving up rents, a prescient indicator of low affordability. Gen Z renters are also entering the market.
February saw record-high 17.2 percent year-over-year rent price growth nationally. Rental vacancies are nearing all-time lows.
If prices spike unexpectedly in Tuesday’s report, that could mean more trouble ahead for America’s renters.
Sun worshippers may convert – or proselytize
Phoenix has led year-over-year price increases for the last 32 months, including a 32.6 percent increase in January. The South and Southeast have been charging ahead of the rest of the nation as remote workers seek more space, nicer weather and lower costs of living.
But existing-home sales in the South saw the seventh straight month of the nation’s highest price appreciation in March. Tuesday’s report will illustrate whether warm-weather havens like Tampa and Miami are attractive in the long term, or if the return to work in person and lower prices in other areas render them flashes in the pan.