US home prices rose more than expected in June, data out Tuesday showed.
The latest read on the S&P CoreLogic Case-Shiller National index showed prices rose 18.61% that month, marking yet another milestone in a series of record-setting YoY gains (figure below).
“June’s gain for the National Composite is the highest reading in more than 30 years of data,” Craig Lazzara, global head of index investment strategy at S&P Dow Jones Indices, said. You’ll recall that Lazzara was fresh out of superlatives last month. He was similarly bereft on Tuesday.
In June, Boston joined Charlotte, Cleveland, Dallas, Denver and Seattle in recording record 12-month gains.
June’s data continue to support the notion that pandemic dynamics are driving prices higher, Lazzara said. “This demand surge may simply represent an acceleration of purchases that would have occurred anyway over the next several years,” he remarked, reiterating familiar language almost verbatim, before suggesting (again) that “there may have been a secular change in locational preferences, leading to a permanent shift in the demand curve for housing.”
Phoenix and San Diego led gains, posting YoY increases of 29.3% and 27.1% respectively.
These figures are on a lag and more recent data suggests the surge in prices is beginning to erode demand, at least at the margins. Pending home sales fell a second month in July data out earlier this week showed, and prices for new homes resumed their ascent last month after taking a brief break in June.
The boilerplate copy remains the same. The Fed gets some of the “blame” (figure below) but it’s impossible to disentangle de-urbanization demand tied to the pandemic from record-low mortgage rates, especially considering the pandemic was itself the impetus for stepped-up Fed bond-buying.
At the same time, the proliferation of work-from-home arrangements, some of which are now semi-permanent, created still more demand for homes as a sock-footed, sleepwalk from the bedroom to the home office replaced the “joy” of the morning commute.
As discussed here last week (and on countless occasions previous), it’s entirely possible that workers in many sectors will demand more flexible arrangements or otherwise rethink what counts as acceptable vis-à-vis terms of employment going forward.
To quote myself, corporate America just logged record profits, on record margins, while operating under various virus protocols. And while folks like Jamie Dimon insist that a return to full-time office work is somehow a prerequisite if we’re to reestablish pre-pandemic vibrancy and dynamism, someone forgot to tell JPMorgan’s bottom line. You can say the same thing for hundreds of other corporate behemoths.
Another way of summing it up is just to say what S&P’s Lazzara said Tuesday: “More time and data will be required to analyze” the situation.
IMHO, homes will continue upward gains in valuation, due almost entirely to Boomer dynamics. The notion that home prices will eventually drop in order to fall in-line with Generation X, or Z income (or savings) is a pipe dream. The cash tsunami from retiring seniors and industrial investors eclipses any entry-level hopes that younger couples may grasp at. That’s a solid fact. Fed rates are also pointless (in a cash based market). As a guess, I’d imagine 2022 will see similar gains to 2021. This is non linear, it doesn’t have to make sense.
I suspect your observation is accurate in the short run. Here in KC we are in the midst of a huge apartment boom. Typical rates for what I consider to be high average units are 1500-1700/ a month. High, perhaps, but cheaper than a mortgage on even a 300k house, if you can find one that is not a pit. I suspect the apartments are mostly in demand by the 25-40 crowd, with some older folks mixed in.
Sadly, I agree. Look at INVH and AMH – as long as their business model is viable, the institutional pressure on house prices will continue.