U.S. home price appreciation remains elevated in November, rents zoom up

U.S. home price appreciation remains elevated in November, rents zoom up

*Home prices rose 1.1% m/m and 18.8% yr/yr on a seasonally adjusted basis in November, according to the S&P CoreLogic Case-Shiller Home Price Index (Chart 1). This represents a modest decline in the yr/yr measure relative to the Q3 average of 19.8% yr/yr, but remains markedly elevated relative to historical record. For example, the highest rate of annual home price appreciation during the debt financed housing boom of the early 2000s was less than 14.5%. We expect the housing market to remain robust, underpinned by the supply constraint-driven backlog of construction and elevated inflation that will keep real rates negative even as mortgage rates rise.

*Rising home prices in November reflect the confluence of strong demand (on a not seasonally adjusted basis existing home sales were 503k annualized in November relative to the pre-pandemic 2018-19 average of 400k) and deeply depressed home inventories. The total number of existing homes available for sale fell to 1.1 million in November, a near series low, while the months’ supply of existing homes edged down to 2.1 (Chart 2). Fierce competition among prospective home buyers has driven the average sale to list price ratio to 101%, well above its 2018-19 average of 98.4%.

*Regional disparities in home price trends are apparent, reflected in a widening gap between annual home price growth in Q3 relative to that in November (Chart 3). For example, annual home price growth decelerated in Boston (13.5% in Nov vs. 17.7% Q3), New York (13.7% in Nov vs. 17.6% Q3), and Washington D.C. (11.1% in Nov vs. 14.1% Q3) but has accelerated in metro areas across parts of the South, with annual price growth rising in Miami (26.6% in Nov vs. 23.8% Q3) and Atlanta (21.5% in Nov vs. 20% Q3).

*Rising home prices, strong nominal wage growth, and migration patterns over the course of the pandemic have contributed to surging rents, which rose 15.7% yr/yr in December, according to the Zillow Observed Rent Index (Chart 4). Rising demand for rental units and lack of supply is reflected in the sharp decline in the rental vacancy rate to 5.8% in Q3, a 1pp decrease relative to Q1 2021.

*Market rents impact measures of shelter costs in official inflation indices with a lag, and the substantial increase in market rents over the last year will likely feed into notably higher shelter inflation through 2022-23 (“OER, services prices, and inflation”, January 18th 2022).

Chart 1.

Chart 2.

Chart 3.

Chart 4.

Mickey Levy, [email protected]

Mahmoud Abu Ghzalah, [email protected]

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