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Topline
Property data firm CoreLogic reported Tuesday that average home prices rose by 10.4% in February—the largest annual jump since the 11% increase in April 2006—but cautioned that a mix of factors, including a glut of unsold properties due to their unaffordability and rising mortgage rates, will likely slow down the pace of price increases over the next 12 months
A “For Sale” sign near a group of houses under construction at the Norton Commons subdivision in … [+]
Key Facts
Frank Nothaft, Corelogic’s chief economist, told Forbes these some of these homebuyers have been relocating to lower-cost Central Valley or Inland Empire in California, while others have moved to lower-cost areas like Idaho, Utah, Nevada, Arizona and Colorado.
CoreLogic’s consumer survey found that 57% of non-homeowners on the West Coast think their local housing markets are still too expensive.
Idaho, Montana and South Dakota delivered the highest annual home price growths in February – surging 22.6%, 19.5% and 17.1%, respectively – as homebuyers flocked to these still lower-cost regions.
CoreLogic noted that on a month-over-month basis, home prices increased by 1.2% in February 2021, up from 0.9% growth recorded in January 2021.
But CoreLogic also thinks home price growth may eventually slow down nationally — rising by only 3.2% through next February, as increasing inventory, combined with a supply of still unaffordable homes, might discourage consumers from purchasing homes.
Crucial Quote
“Homebuyers are experiencing the most competitive housing market we’ve seen since the Great Recession,” said Frank Martell, president and CEO of CoreLogic in a statement.
Key Background
Home prices have risen over the past year as demand continues to outpace supply, making new houses unaffordable for first-time buyers as mortgage rates also climb. Nothaft of Corelogic explained to Forbes that one of the reasons for low inventory, aside from continued high demand, is that most owner-occupants are older folk (median age 57 years) – and many have postponed offering their homes for sale until the pandemic subsides or they become vaccinated, dampening available new listings. Nothaft explained, however, that home price growth should slow down over the next year as mortgage rates climb, more Americans gets vaccinated and prospective home-sellers who had been delaying listing homes gradually put their properties up for sale, adding to available inventory.
Surprising Fact
But Greg McBride, chief financial analyst at Bankrate.com, pointed out to Forbes that while mortgage rates have indeed been rising – up from 2.65% for the benchmark 30-year fixed mortgage at the beginning of the year to 3.18% at present – they remain low by historical standards, and are lower than they were a year ago.McBride said the 30-year fixed rate might move up to 3.5% later this year, but even then rates will still be modest on a historical basis.
Chief Critic
McBride of Bankrate told Forbes he also expects home prices to rise this year, but thinks the migration out of pricey coastal cities to cheaper rural and inland areas may taper out by the end of the year as vaccinations continue and more employees return to their offices. Rich Kleinman, co-CIO and head of U.S. research & strategy at LaSalle Investment Management Americas, a Chicago-based real estate investment firm, told Forbes the migration to lower-cost regions will likely continue in 2021, but perhaps not at the same magnitude seen last year. “Long-term the [migration] trends favor less expensive places, but not always rural areas,” he said.
Further Reading
Home Prices Will Increase In 2021. Here’s Where You Might Find Value (Forbes)
Mortgage Rates Are Probably Going Up, So Get A 30-Year (Forbes)
Mortgage Rates Hit Their Highest Point Since Last July. Will They Keep Rising? (Forbes)
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