The first read on home prices in June is proving just how resilient the housing market has been in the face of an ongoing economic disaster. Strong demand for housing, much of it pushed by the coronavirus pandemic itself, is driving prices higher faster, but forecasters say that may not last.
Nationally, home prices increased by 4.9% annually in June, a much greater gain than the 4.1% annual rise in May, according to CoreLogic. Prices climbed 1% month to month, which is the fastest monthly gain for June since 2013.
Prices got a boost from record low mortgage rates, which give buyers more purchasing power. The average rate on the popular 30-year fixed mortgage jumped up to 3.24% at the start of the month, but then fell precipitously, ending June at 2.94%, according to Mortgage News Daily.
“Mortgage rates hit record lows this spring, which enhanced affordability for homebuyers,” said Frank Nothaft, chief economist at CoreLogic. “First-time buyers, and millennials in particular, have jumped at the opportunity to achieve homeownership.”
Some markets are performing better than others. Prices were up a strong 8.4% annually in Philadelphia, where the city is benefiting from an influx of New Yorkers. New York City was hit very hard by the coronavirus in the early months, and some residents chose to relocate to outlying suburbs – even as far as Philadelphia, seeking more space and a safer environment.
Home prices in San Francisco, however, slumped slightly compared with a year ago, as tech workers were told they could work remotely from anywhere. That resulted in many people moving out of the city to more affordable locations. Demand fell, and prices followed.
Prices in San Diego and Washington, D.C., were strong, mostly because the supply of homes for sale in each market is so low and demand is so high. Inventory in D.C. was 25% lower annually in June, according to a report from Long & Foster, a real estate sales company.
While the supply situation isn’t improving much, and mortgage rates are not expected to rise much, forecasts for home prices going forward are not quite as bullish. Should the pandemic worsen dramatically, causing another full economic shutdown, home sales could weaken as they did in March and April, and prices would reflect that. By next June, CoreLogic economists predict prices will be 1% lower than they were this year.
“As we move forward, we expect these price increases to moderate over the next 12 months. Given the economic outlook, housing remains a bright spot for the foreseeable future,” said Frank Martell, president and CEO of CoreLogic.
The drop in prices could be particularly sharp in markets like Las Vegas, where the economy depends heavily on entertainment and hospitality. CoreLogic predicts an 11% price decline by June of next year. Parts of Arizona, which are also seeing spikes in Covid-19 cases, are expected to see prices weaken.
The variables in all of these predictions are the path of the coronavirus, a potential vaccine, and supply and demand, the more fundamental drivers of housing. Homebuilders are seeing very strong buyer interest and sales, but they have not been able to ramp up production to meet that because of supply chain issues brought on by the pandemic and a tight labor market that has been hindering the housing recovery for several years.