Even with the spread of COVID-19, home price growth remained steady across the U.S., according to the latest S&P CoreLogic Case-Shiller home price index.
The index, which includes 20 U.S. cities, showed a 4% year-over-year gain in April, an increase from 3.9% the previous month. Between March and April, the index rose by 0.9%.
Since there is a two-month lag in the data, this report was the first to indicate the full effects of the pandemic on the U.S. housing market. It noted a 4.7% boost in home prices across the nation over the past year.
City and Region Differences
Showcasing the biggest price gain this April was Phoenix (8.8% annually), followed by Seattle (7.3%), Minneapolis (6.4%) and Cleveland (6.0%). In 12 of the 19 cities that Case-Shiller analyzed, the pace of price growth increased. Detroit, the 20th city, was not included in this month’s report due to unavailable transaction records for Wayne County, MI.
The West and Southeast saw particular strong price growth, while the Northeast saw a weaker expansion than other parts of the country. Craig Lazzara, managing director and global head of index investment strategy at S&P Dow Jones Indices, noted in the report:
“This is, so far, the only directly visible impact of COVID-19 on the S&P CoreLogic Case-Shiller Indices. The price trend that was in place pre-pandemic seems so far to be undisturbed, at least at the national level.”
Another index, the Federal Housing Finance Agency’s (FHFA) monthly home price index, also shows that prices across the country grew on a monthly and yearly basis this April. Notably, it reported a 0.2% monthly increase and a 5.5% yearly rise.
However, some U.S. regions did experience price decreases between March and April, according to the FHFA report, and these include New England and the South Atlantic region, which runs from Maryland to Florida. Dr. Lynn Fisher, deputy director of the Division of Research and Statistics at FHFA, stated in the report:
“We expect the normal spring bump in sales was pushed off by the COVID-19 shutdowns and may extend into the summer months as states reopen and real estate sales pick back up.”
Factors at Play
In a research note, Rubeela Farooqi, chief U.S. economist for High Frequency Economics, explained:
“The housing market is likely benefiting from low mortgage rates, stronger demand for larger spaces as more and more people work from home and a desire to move away from crowded cities to avoid exposure to the coronavirus.”
The trajectory of the pandemic will likely determine whether this trend will continue. Relative to a tight inventory of homes for sale, homebuying demand has remained high until now. As well, home sales activity seems to be rebounding across most of the U.S. as states start to reopen.
However, the states that have reopened saw increased numbers of people testing positive for COVID-19, which meant they had to backtrack on some of their reopening plans to help slow the spread of the virus. So far, it’s unclear what effect this will have on consumer confidence or the economies in these areas.
According to a recent report from Zillow, a decrease in home prices could be delayed and might not be seen until the second half of the year. Senior principal economist Skylar Olsen stated:
“The next question housing will face is whether this growth can continue after demand built up during housing’s brief pause in the pandemic’s early days runs its course. It’s likely housing will feel the broader economy’s downturn eventually, though to a mild degree, and home values will fall in the coming months.”
Hopefully, any downturn will be followed by a quick rebound, considering the demand for homes does not seem to be decreasing and potential buyers will likely want to take advantage of current low interest rates. Once the pandemic is contained and more cities across the U.S. reopen safely, the housing market may experience even more growth.