The numbers: Home prices rose at the fastest pace in seven years, according to the leading barometer released Tuesday.
The S&P CoreLogic Case-Shiller 20-city price index posted a 10.1% year-over-year gain in December, up from 9.2% the previous month. On a monthly basis, the index increased 0.8% between November and December.
It was the first time that home prices saw a double digit increase since January 2014, according to Selma Hepp, deputy chief economist at CoreLogic.
Additionally, the broader S&P Corelogic Case-Shiller national price index, which covers the entire country, demonstrated a 10.4% gain year-over-year in December, up from 9.5% the prior month.
What happened: Prices rose in at least 18 of the 20 large cities tracked by Case-Shiller — Detroit, which is typically included in the 20-city index, was once again not included in the analysis because of issues collecting data amid the pandemic.
Phoenix, Ariz. experienced the largest price increase for the 19th consecutive month with a 14.4% increase, followed again by Seattle (13.6%) and San Diego (13%).
“From the perspective of more than 30 years of S&P CoreLogic Case-Shiller data, December’s year-over-year change ranks within the top decile of all reports,” said Craig Lazzara, managing director and global head of index investment strategy at S&P DJI.
Separately, the Federal Housing Finance Agency released its quarterly home price index for the fourth quarter of last year on Tuesday. According to that report, home prices were up 10.8% compared with the fourth quarter of 2019 and 3.8% from the third quarter of 2020.
Western states experienced the greatest home price growth, the FHFA found, led by Idaho (21.1%), Montana (15.5%) and Utah (15.4%). At the city level, Boise, Idaho saw the biggest jump in home prices, while San Francisco saw the smallest.
The big picture: The factors contributing to the breakneck pace of home-price appreciation remain the same, even in the New Year. Demand for housing remains extremely high — millennials are in their prime home-buying years, and the pandemic accelerated a trend of people leaving cities for more space in the suburbs. Meanwhile, buyers have all but exhausted the inventory of homes for sale, and with the pandemic ongoing, sellers have been reluctant to list their homes. Plus, years of slow home-building activity has meant that the U.S. has a shortage of housing to begin with.
What has changed in 2021 thus far are mortgage rates. They’ve gone up in response to positive economic news in recent weeks as well as the rollout of the COVID-19 vaccine. “The rise in mortgage rates has been putting a dent in affordability for many buyers, setting the stage for a challenging next few months, as consumer incomes have not kept pace with home price gains,” said George Ratiu, senior economist at Realtor.com.
What they’re saying: “Housing has been a bright spot during the pandemic with no signs of slowing amid low interest rates and dwindling supply,” Priscilla Thiagamoorthy, an economist at BMO Capital Markets, wrote in a research note.