Home prices increased in the double digits for the third consecutive month in February, but some economists have begun to wonder: Is it sustainable?

The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported a 12 percent annual gain in February, up from 11.2 percent in the previous month.

Home prices are not only increasing, but they are moving up at a faster rate than previous months. 

“More than 30 years of S&P CoreLogic Case-Shiller data help us to put February’s results into historical context,” said Craig Lazzara, S&P DJI managing director and global head of index investment strategy. “The National Composite’s 12 percent gain is the highest recorded since February 2006, exactly 15 years ago, and lies comfortably in the top decile of historical performance. Housing’s strength is reflected across all 20 cities; February’s price gains in every city are above that city’s median level, and rank in the top quartile of all reports in 18 cities.

“These data remain consistent with the hypothesis that COVID has encouraged potential buyers to move from urban apartments to suburban homes,” Lazzara said. “This demand may represent buyers who accelerated purchases that would have happened anyway over the next several years. Alternatively, there may have been a secular change in preferences, leading to a permanent shift in the demand curve for housing. Future data will be required to analyze this question.”

The 10-City Composite annual increase came in at 11.7 percent, up from 10.9 percent in the previous month. The 20-City Composite posted an 11.9 percent year-over-year gain, up from 11.1 percent in the previous month.

Home prices

Phoenix, San Diego and Seattle reported the highest year-over-year gains among the 20 cities in February. Phoenix led the way with a 17.4 percent year-over-year price increase, followed by San Diego with a 17 percent increase and Seattle with a 15.4 percent increase. Nineteen of the 20 cities reported higher price increases in the year ending February 2021 versus the year ending January 2021.

Because of the fast pace home prices are moving, Zestimates, long lambasted by agents as inaccurate, have been swinging out of control in today’s turbulent market, with some prices skewing hundreds of thousands of dollars off the mark.

On a monthly basis, after seasonal adjustment, the U.S. National Index posted a month-over-month increase of 1.1 percent, and the 10-City and 20-City Composites both posted increases of 1.1 percent and 1.2 percent respectively. In February, all 20 cities reported increases before and after seasonal adjustments.

But now some economists are beginning to question whether this growth is sustainable.

“S&P CoreLogic Case-Shiller Index continued to speed ahead, jumping 12 percent in February,” CoreLogic Deputy Chief Economist Selma Hepp said. “With national and city-composite indices, as well as all three price tiers surging at double-digit rates for the third consecutive month in February, the housing market is running full steam ahead – with many observers questioning where the train is heading and what the next stop will look like.

“Nevertheless, while the sustainability question is reasonable, housing market strength is reflecting many of the positive and continually improving signs of the economic recovery, including employment gains, consumer savings and more purchase power among home buyers, all while mortgage rates remain historically low,” Hepp said. “More for-sale inventories and a narrowing pool of potential buyers will likely slow the speeding train, providing a clearer vision of what’s ahead.”

One economist explained that today’s rising rates have created a frustrating environment for homebuyers, but an upcoming surge in new home listings could change that. 

“While buyers were eager in early 2021, sellers have been holding back,” realtor.com Chief Economist Danielle Hale said. “We’ve seen 200,000 fewer new sellers than we would typically see in January and February and an additional 117,000 new sellers were missing compared to the typical year in March. These trends have resulted in extraordinarily frustrating trends for buyers, especially first-timers. However, there may be hope on the horizon as we are currently in what is the best time of the year for sellers to list a home for sale in many markets. 

“On top of that, our recent weekly data shows big increases in the number of new sellers (albeit from a low reading in 2020),” Hale said. “And while it’s not the number one cause for not selling in 2021, our recent survey data shows that roughly one in five sellers aren’t selling this year because of concerns related to COVID risks, a number that is likely to diminish as we make progress against the pandemic. Taken together, these additional sellers should translate into slower home price gains in the not-distant future.”

Email Kelsey Ramírez

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