US Home Prices Surged By 10% In January, The Largest Annualized Jump Since Late 2013, Says CoreLogic

Topline

CoreLogic, a leading provider of property data, said on Tuesday that U.S. home prices jumped by 10% in January 2021 on an annualized basis, the first such double-digit annual growth recorded since November 2013, but warned that rising mortgage rates and tight supply may temper further increases in both home sales and home prices.

Key Facts

Key Background

Record-low mortgage rates— (30-year fixed-rate mortgages have hovered around the all-time low of 3% level since last fall) —encouraged first-time house buyers last year, while boosting home prices, despite the economic uncertainties wrought by the Covid pandemic. CoreLogic warned that as demand continues to outpace supply, home prices will continue to push higher over the next six months, putting some properties out of reach for some prospective buyers. CoreLogic’s own survey revealed 76% of U.S. non-homeowners have no plans to buy a home within the next six months – with affordability posing the biggest deterrent.

What To Watch For

Frank Nothaft, CoreLogic’s executive chief economist, told Forbes he expects fixed-rate mortgage rates to rise gradually in 2020, perhaps by as much as another one-quarter of a percentage point. “Mortgage rates are projected to average about 3.5% next year, in 2022,” he says. “[But]

these are still very low [rates]... For example, during the 2010-2019 decade, the 30-year fixed-rate mortgage averaged 4.1%.” Still, citing that some prospective homebuyers will find that higher mortgage rates will limit their ability to afford to buy, thus tempering demand, Nothaft says this will likely moderate home-price growth from the “torrid gains” witnessed in recent months. “We expect annual home-price growth to gradually slow from about 10% in the first three months of 2021 to about 5% in the last three months of 2021,” he adds. “[But] we [still] expect home sales in 2021 to exceed 2020’s level and [reach] the highest annual sales since 2006.” Nothaft also notes that while the phenomenon of families seeking larger homes in suburban and rural areas and moving out of big cities accelerated during the pandemic, it is too early to say whether this trend will continue in 2021. “Studies suggest 20% to 25% of employees are working from home three to five days per week in a post-pandemic economy,” he says. “If [this] scenario [continues], then demand for larger homes in suburban and rural areas will likely continue.”

Tangent

CoreLogic noted that the metropolitan areas of Phoenix and San Diego witnessed especially high annual home price appreciations in January – about 10%. Nothaft says high demand and a shortage of homes for sale have driven prices up in Phoenix and San Diego. “Record low mortgage rates have provided an opportunity for Millennials and Gen Xers to become first-time buyers,” he says. “In particular, the Phoenix-Mesa-Scottsdale metro [area] has had strong population growth over the last several years because of its employment opportunities and attraction for retirees. The U.S. Census Bureau estimated that Arizona had the fastest population growth of any state (1.8%) between 2019 and 2020.” On the other side of the ledger, CoreLogic expects home prices in the Beaumont-Port Arthur, Tex. metro area to be at high risk to plunge this year. “A large part of the local economy has employment based in oil and refining,” Nothaft explains. “In December, the [local] unemployment rate was 11%, ranking it as an area with one of the highest jobless rates in the U.S. The high unemployment puts the area at a higher risk for home price declines in the coming year.”

Further Reading

Experts Predict What The Housing Market Will Be Like In 2021 (Forbes)

Rents, Home Prices In New York City Drop At Steepest Pace On Record In January (Forbes)