Bubble Trouble: Home Prices Rise at Fastest Annual Pace Since 1987
By JOHN CARNEY
Home prices rose at an unprecedented pace in June, fueling fears that the U.S. housing market is experiencing another bubble.
The S&P CoreLogic Case-Shiller national home price index was up 18.6 percent annually in June, up from the 16.8 percent increase in May.
That is the largest year-0ver-year gain in the history of the index dating back to 1987. On a nominal basis, prices nationally are now 41 percent higher than their last peak during the housing boom in 2006.
“June 2021 is the third consecutive month in which the growth rate of housing prices set a record,” says Craig J. Lazzara, Managing Director and Global Head of Index Investment Strategy at S&P DJI. “The National Composite Index marked its thirteenth consecutive month of accelerating prices.”
The 10-City composite rose 18.5 percent, up from 16.6 percent in May. The 20-City composite was up by an even steeper 19.1 percent, up from 17.1 percent in May.
Before seasonal adjustment, the U.S. National Index increased 2.2 percent month-over-month in June, while the 10-City index rose 1.8 percent and the 20-City index climbed 2.0 percent.
After seasonal adjustment, the U.S. National Index saw a month-over-month increase of 1.8 percent. The 10-City index rose 1.6 percent on a seasonally adjusted basis and the 20-City index rose 1.8 percent. All 20 cities reported increases before and after seasonal adjustments.
“We have previously suggested that the strength in the U.S. housing market is being driven in part by reaction to the COVID pandemic, as potential buyers move from urban apartments to suburban homes. June’s data are consistent with this hypothesis. This demand surge may simply represent an acceleration of purchases that would have occurred anyway over the next several years. Alternatively, there may have been a secular change in locational preferences, leading to a permanent shift in the demand curve for housing,” Lazzara said.
Others are worried that the rise in home prices that accompanied the pandemic may have given way to a housing bubble that could pop or deflate, leaving some owners owing more on their homes than they are worth.
US President Joe Biden participates in a CNN Town Hall hosted by Don Lemon at Mount St. Joseph University in Cincinnati, Ohio, July 21, 2021. (Photo by SAUL LOEB / AFP) (Photo by SAUL LOEB/AFP via Getty Images)
“I feel bad for the people who bought homes over the past year because they’re the ones that paid the very elevated prices,” Peter Boockvar, the chief investment officer at Bleakley Advisory Group, told CNBC’s “Trading Nation.”
Boockvar explained that buyers who purchased homes with low amounts of equity will be underwater if homes prices dropped by ten percent.
“Their equity is basically wiped out,” he said. “For those who have owned for a while that have built up equity, they will be much more insulated.”
Most economists continue to believe the current run-up in prices will not lead to a crash in the future. Instead, they foresee home price gains slowing in the future, indicating that today’s gains are borrowed from those that would have come in future years but were pushed forward by the pandemic.