U.S. home sales and prices up sharply

U.S. home sales and prices up sharply

* Home prices rose 1.4% nationally in August on a seasonally adjusted basis, lifting their yr/yr increase to a record 19.9%, according to the S&P CoreLogic Case-Shiller Index (Chart 1). Recent home price increases have exceeded even those during the debt-financed housing bubble between 2002 and 2006 on a yr/yr basis. Rising prices have been underpinned by strong demand amid limited supply, the months supply of existing homes was 2.6 months in August compared to the 2000-2019 average of 5.8 months. The pace of home price increases may have begun to moderate albeit at a significantly elevated level, with prices rising 26.1% on a six-month annualized basis but increasing 22.1% on a three-month annualized basis.

* New home sales surged in September, rising 14% m/m to 800k annualized from August’s downwardly revised 700k but remain substantially below their intra-pandemic peak of 980k (Chart 2). Strong demand and supply disruptions that have raised the costs of construction have contributed to the rise in median sales prices of new homes, which edged up to 409k, an 18.7% yr/yr increase. The months supply of new homes at the current sales rate fell to 5.7 months but remains substantially above its trough one year ago of 3.5 months.

* New home sales rose 17.5% m/m in the South (+74k), accounting for the bulk of the monthly increase. Sales in the Midwest continue to decline, falling for three consecutive months. The rise in new home sales partly reflects the surge in single family home starts in December to 1.3 million and the uptick in housing completions.

* Despite the surge in home prices and rent, the costs of shelter measured in the CPI and PCE price indexes have risen more moderately (Chart 3). The cost of shelter in the CPI rose 3.2% yr/yr and 2.6% yr/yr in the PCE price index, and these increases should accelerate as rising home prices are more fully reflected in shelter costs, exerting upward pressure on headline inflation figures.

Chart 1: S&P CoreLogic Case-Shiller Home Price Index

Chart 2: New 1-Family Home Sales

Chart 3: Home Prices vs. Cost of Shelter

Mickey Levy, [email protected]

Mahmoud Abu Ghzalah, [email protected]

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