The numbers: Home prices rose at the fastest rate on record in April, according to the latest edition of the S&P CoreLogic Case-Shiller Home Price Index.
The national index recorded an increase of 14.6% over the past year, representing the highest reading since in the more than 30 years of S&P CoreLogic Case-Shiller data. The separate 20-city index, which gauges home prices across a group of major cities across the country, increased at over the past year by 14.9% in April, well past the 13.3% growth recorded the month prior.
Comparisons between April 2020 and April 2021 may be skewed by the onset of the COVID-19 pandemic during that time period last year. When the pandemic began, home prices initially held steady, but appreciation exploded when the housing market recovered in the summer.
“Pressures on home prices that have built over the last year culminated in the strongest home-price growth since the beginning of the data series in 1987,” said CoreLogic deputy chief economist Selma Hepp.
What happened: As in recent months, Phoenix, San Diego and Seattle experienced the largest gains over the past year, with home prices in all three of these cities rising 20% from last April. Overall, there were five cities where home prices rose by record amounts: Charlotte, Cleveland, Dallas, Denver and Seattle.
Separately, the Federal Housing Finance Agency released its own house price index, which recorded a 15.7% rise in home prices between April 2020 and April 2021, also a record amount. The Mountain region—which includes Idaho, Montana, Wyoming, Nevada, Utah, Colorado, Arizona and New Mexico—experienced the most pronounced home price appreciation over the past year, at a rate of 20.6%, the FHFA found.
The big picture: The very factors that continue to push home prices higher are also limiting sales activity across the housing market. The U.S. continues to face a housing supply crunch—and while pandemic-influenced moves certainly made the shortage of homes for sale worse, it’s not the main reason behind the current conundrum facing buyers.
For many years following the Great Recession, home-building activity did not keep pace with the formation of households and population growth in this country. And now that millennials especially are buying homes in earnest, there simply isn’t enough inventory to go around. New home construction, while at the highest pace in some time, can only make up for the shortfall so much.
The situation has improved somewhat in recent months as home sellers did begin to bring their properties to market, but the challenge for existing homeowners is finding a new place to live once they sell. Those fears could be keeping homes off the market.
The low supply of homes will naturally put a ceiling on how many sales can happen. But as mortgage rates begin to rise, affordability will become a more significant barrier for many prospective buyers and force some households out of the market.
What they’re saying: “The monthly gains likely will peak in early summer, before slowing into the fall as inventory rises,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics.
“April’s performance was truly extraordinary,” said Craig J. Lazzara, managing director and global head of index investment strategy at S&P Dow Jones Indices.
“If home price increases, which, according to the Fed’s ‘transitory’ narrative, should probably be beginning to decelerate soon, are in fact still building momentum, then it might tell us something about the broader inflation outlook,” said Stephen Stanley, chief economist at Amherst Pierpont.
Market reaction: The Dow Jones Industrial Average and S&P 500 rose in Tuesday trades.