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- US home prices surged 10.4% year-over-year in February, the biggest such jump since 2006.
- The market has been red hot during the pandemic, but affordability represents a new challenge.
- Price growth will cool into 2022 as mortgage rates rise and price out more buyers, CoreLogic said.
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Everyone knows it's been hard to find an affordable house amid the pandemic, but as the data comes in, it's becoming clearer just how hard.
The answer: Extremely.
US home prices continued to rip higher in February as supply constraints across the country and outsize demand boosted competition.
Selling prices increased 10.4% in February from year-ago levels, marking the largest year-over-year gain since 2006, according to CoreLogic data published Tuesday. Prices rose 1.2% from levels seen in January 2021. Idaho and Montana saw the biggest jumps, with year-over-year gains of 22.6% and 19.5%, respectively, according to the financial analytics firm CoreLogic.
And the outlet sees another year of more expensive housing ahead, projecting prices will rise another 3.2% by February 2022. The end of the pandemic can ease constraints on supply, CoreLogic said. On the demand side, it expects the lack of affordable housing to cut into some potential purchases.
"The run-up in home prices is good news for current homeowners but sobering for prospective buyers," Frank Nothaft, chief economist at CoreLogic, said. "Those looking to buy need to save for a down payment, closing costs, and cash reserves, all of which are much higher as home prices go up."
The housing market was among the few hotbeds of economic activity throughout the coronavirus pandemic. The Federal Reserve's emergency rate cuts in March 2020 pulled mortgage rates to numerous record lows throughout last year, leading many to take advantage of more appealing borrowing costs. Prolonged work-from-home periods spurred moves from apartment-dense cities into suburbs, which also lifted housing-market demand.
The buying spree quickly snapped up most of the market's available supply, but that streak recently showed signs of slowing. For one, expectations for a strong economic recovery saw investors dump Treasurys in recent weeks, lifting yields on government debt and in turn leading mortgage rates to swing higher. Rates now sit at their highest levels since June after rising for seven weeks straight.
The turnaround in mortgage rates and soaring prices seemed to finally bite into the housing market's rally in February. Existing home sales fell 6.6% that month to the slowest rate since August, according to the National Association of Realtors. At the same time, supply remained a measly 1.03 million units, a level that would only satisfy two months of sales at the February rate. Should prices trend even higher, the red-hot market could cool even faster.
"Homebuyers are experiencing the most competitive housing market we've seen since the Great Recession," CoreLogic CEO Frank Martell said. "As affordability challenges persist, we may see more potential homebuyers priced out of the market and a possible slowing of price growth on the horizon."