Prices in tourist-heavy Las Vegas and Miami expected to drop while economy recovers
Despite home prices rising 6.7% year over year in September, CoreLogic’s Home Price Index Forecast (HPI) estimates home prices will moderate next year, increasing 0.2% nationally by September 2021 as higher prices erode affordability.
Home purchase demand managed to maintain pace through the summer, and now through the fall, as record low mortgage rates continued to encourage new borrowers to enter the market. According to CoreLogic, it wasn’t just new homebuyers, but homeowners looking to trade up or invest in a second home with rock-bottom rates who were driving the boom.
“Housing continues to be a bright spot during an otherwise challenging economic time for many U.S. households. Those in sectors that weathered the transition to remote work successfully are now able to take advantage of low mortgage rates to purchase a home for the first time or to trade up to a larger home,” said Frank Martell, president and CEO of CoreLogic.
Data from the National Association of Realtors and U.S. Census Bureau shows that the national supply of homes for sale in September fell to the lowest level ever recorded. After months of severe shortages, upward pressure on home price appreciation had consumers battling it out for the limited supply, the report said.
“COVID has contributed to the acute shortage of inventory as the pace of new construction slowed and older prospective sellers postponed listing their homes until after the pandemic. Once the pandemic passes or a vaccine is widely administered, we should see a noticeable pick-up in for-sale homes. And if the economy’s recovery is sluggish next year, distressed sales may also add to market inventory,” said Frank Nothaft, chief economist for CoreLogic.
As for-sale inventory picks up steam and affordability begins to erode, the HPI estimates home prices to level out – though that affordability chasm may already be widening. Luxury home sales took off in the third quarter by 41.5%, according to a report from Redfin. Affordable home sales, on the other hand, declined by 4.2%
Despite the rapid acceleration of national home price growth, local markets continue to vary, the report said. For instance, Phoenix prices increased 11.1% in September as Redfin reported 56.5% of offers in the city saw bidding wars. Phoenix also took the No. 1 spot in August for steepest year-over-year gains for the 15th month in a row, according to the Case Schiller Index.
Meanwhile, the New York-Jersey City-White Plains metro recorded only a small annual increase in home prices of 0.3%, as residents opt for more space and privacy in less densely populated areas, CoreLogic said.
The CoreLogic Market Risk Indicator (MRI), a monthly update of the overall health of housing markets across the country, predicts that metros such as Las Vegas and Miami — areas that have been hard hit by the collapse of the tourism market — are at the greatest risk (above 70%) of a decline in home prices over the next 12 months. CoreLogic estimates home prices in Las Vegas particularly will drop 5.6% by September 2021.