Limited inventory and high demand are keeping U.S. home prices rising this spring. Although homebuilders are expanding their production, especially in lower-cost suburban markets, potential buyers continue to face pricing and availability challenges.
Nationally, home prices increased 13% in April 2021, compared with the prior year, and rose 2.1% from March, according to the CoreLogic Home Price Index. The annual gain in the index was the highest since 2006.
Reflecting buyers’ desire for interior space, the 14.7% appreciation of detached properties was more than double the 7.2% for attached properties in April. In fact, a recent CoreLogic consumer survey indicated the need for more space was the top driver for millennials entering the market or purchasing move-up homes.
Record price increases
The record pace of price increases continued in May, according to Realtor.com®’s Weekly Housing Trends Report. For the week ending May 22, prices were up 14.9% year-over-year while new listings were up 9%, continuing a steady weekly increase.
“Home prices continue to rise and homes are still selling fast, but buyers watching the market closely will see that we’re inching toward more options thanks to the seasonal surge in home sellers,” said Danielle Hale, chief economist, Realtor.com®. “This is the seventh consecutive week of both smaller declines in the number of homes actively for sale and of year-over-year growth in new listings.”
Buyer confidence drops
The lack of inventory is also impacting buyer confidence. A recent survey on the Point2 Homes real estate marketplace found 48 percent of respondents were very determined to buy, but their hopes of having a new home are fading. The share of people who hope to buy in the next six months has dropped from 34 percent last year to 21 percent this year. However, a surprising 51 percent of respondents were confident that steep price hikes would not be a problem.
Home building expands
Meanwhile, home building across the nation expanded in the first quarter of 2021, according to the National Association of Home Builders (NAHB). The association’s Home Building Geography Index (HBGI) showed a clear suburban shift in new home construction to low-density, low-cost markets largely due to the COVID-19 pandemic.
“With the shift to telework brought on by the COVID-19 pandemic, people have the flexibility to live further out of some metro areas,” said NAHB Chairman Chuck Fowke, a custom homebuilder from Tampa, Florida. “Given the regulatory burdens and lack of lots in high-density, high-cost markets, builders are better able to meet demand in suburban, exurban and rural areas because of the lower cost to build.”
An analysis of building patterns indicates that construction expanded most rapidly in areas with the shortest commutes to employment centers. Counties with the longest commute times lost market share for multifamily construction, while areas with the shortest commute times posted the strongest apartment construction growth rate.
“As workplaces increasingly adopt hybrid work models for roughly 30-40 percent of the American workforce, renters and buyers will have increased market power to minimize travel times and reduce both housing and transportation cost burdens,” said Robert Dietz, chief economist, NAHB.
Looking ahead, CoreLogic projected a slowdown in rising home prices with an increase of another 2.8 percent by April 2022. Affordability was a key reason for the slower pace, as rising prices may limit options for first-time buyers, as well as Boomers looking to downsize.
“As older homeowners become more comfortable with listing their homes, they are faced with the reality that if they sell, they may get a smaller home for the same price as what they already have,” said Frank Martell, president and CEO of CoreLogic. “Rather than decreasing their financial burden and cashing out equity to support their retirement, Boomers may choose to stay put, which could exacerbate inventory challenges.”