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U.S. Home-Price Growth Accelerated in January

Home prices continue to rise.
(pogonici)
(pogonici)
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Home-price growth levels reached a 15-year high in January, while supply of homes on the market fell to a new low, WSJ reports.

Why It Matters: Interest rates are low and, as a result, people are clawing to buy homes. Previously-owned homes sold last year at its highest annual level since 2006. And a natural effect of demand is a lack of supply — homes are scarcer, with buyers pushing up prices through competition.

Numbers To Consider:

  1. According to the S&P CoreLogic Case-Shiller National Home Price Index (it measures average home prices in major American cities) grew by 1.2% in the year ending in January, which was a rise from the annualized 10.4% rate from the month before. (The new January number is also the highest rate since February 2006.)
  2. NAR numbers show there were 1.03 million homes for sale by the end of January, the lowest mark since 1982.
  3. Case-Shiller also has a 10-city mark, which was an improvement of 10.9% through January, rising from 9.9% in December.

The Final Word: “A separate measure of home-price growth by the Federal Housing Finance Agency also released Tuesday found a 12% increase in home prices in January from a year earlier.”

Justin Oh:

Home price increases are something we’ve been tracking for a while, given low interest rates, limited supply, and increased demographic demand for houses in the suburbs.

I believe demand for homes will remain very strong over the coming years due to the aging millennial population, continued flight to suburbs and second tier cities, and generally low rates. But short-term, it’s uncertain how a reopening and rising interest rates will play out in the housing market.

As a homebuyer, I would be hesitant to buy in this super-hot market. I think it’s safer to wait for the post-pandemic housing market to stabilize before buying a home. With such limited supply, you’re just not seeing good value in the marketplace. This applies to single family rentals as well.

If you’re a commercial investor, think retail, office, and multi-family, it might be a good time to pick something up ahead of the reopening, but just make sure you get a good deal with a margin of safety around the return of occupancy. Also be prepared for rising interest rates.

For us public market investors, I am looking into certain homebuilding and construction stocks that are reasonably priced and stand to benefit from the continued pent-up demand for housing supply and the anticipated increase in volumes in the 2-3 years to come.

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