Home prices continued to increase in February, reaching the highest annual gain since April 2006, as demand continues to clash with historically low supply. These factors have created increased affordability challenges, especially as mortgage rates also begin to rise.
CoreLogic analysis also shows homebuyers have steadily moved away from densely populated, high-cost coastal areas in favor of more affordable suburban locales. The number of homebuyers in the top 10 metros with the largest net out-migration—including West Coast metros like Los Angeles, San Francisco and San Jose—who chose to move to another metro increased by 3 percentage points in 2020 to 21% from 2019. This sentiment is reflected in CoreLogic’s recent consumer survey, which found that 57% of current non-homeowners on the West Coast feel the home options in their area are not at all affordable.
“Homebuyers are experiencing the most competitive housing market we’ve seen since the Great Recession,” said Frank Martell, president and CEO of CoreLogic. “Rising mortgage rates and severe supply constraints are pushing already-overheated home prices out of reach for some prospective buyers, especially in more expensive metro areas. As affordability challenges persist, we may see more potential homebuyers priced out of the market and a possible slowing of price growth on the horizon.”
– Nationally, home prices increased 10.4% in February 2021, compared with February 2020. On a month-over-month basis, home prices increased by 1.2% compared to January 2021.
– Home prices are projected to increase 3.2% by February 2022. Increased inventory as the pandemic wanes, coupled with affordability concerns that may discourage potential homebuyers, could lead to a slowdown in home price growth by the end of 2021.
– Metro areas where affordability constraints are prevalent continue to persist as prices rise. For instance, in February, home prices increased 16.2% year-over-year in Phoenix, 12.5% in Seattle and 8.2% in Los Angeles.
– At the state level, Idaho, Montana and South Dakota had the strongest price growth in February, up 22.6%, 19.5% and 17.1%, respectively.
“The run-up in home prices is good news for current homeowners but sobering for prospective buyers,” said Dr. Frank Nothaft, chief economist at CoreLogic. “Those looking to buy need to save for a down payment, closing costs and cash reserves, all of which are much higher as home prices go up. Add to that a rise in mortgage rates and the affordability challenge for first-time buyers becomes even greater.”