Home Prices Up 20% YOY

Home prices rose 5.3% last quarter and nearly 20% year-over-year (YOY), according to Clear Capital’s October 2021 Home Data Index.

Western states led price growth once again, with prices rising 24.3% YOY. Phoenix continued to dominate with a 57% price increase, though the report noted that “COVID-related noise” may have inflated that figure. However, significant increases were confirmed by a 31% rise in price-per-square-foot.

Las Vegas price hikes were close behind, up 26%, followed by Portland, up 21%.

The South followed up the West in appreciation, showing price growth of 20.5% YOY. Tampa topped its list at 31%, followed by Raleigh and Orlando, both experiencing 25% increases. The Northeast saw prices up by 16.7%. Providence and Hartford saw the largest gains there, with prices up 19% and 18%, respectively.

The Midwest saw comparatively modest price growth of 15.9%, led by Columbus with 17% gains.

“While the residential real estate market has been experiencing torrid growth, the economy seems to be slowing down. The advance estimate for third-quarter GDP came in at a disappointing 2% and the Chicago Fed National Activity Index turned negative in September, indicating the economy is growing below trend,” according to Brent Nyitray of the Daily Tearsheet, who provided commentary for the report.

“The conventional wisdom was that the economy would accelerate into the end of the year; instead, the economy seems to be decelerating.”

Nyitray noted that the “Great Resignation” would likely result in wage increases, setting the stage for the “wage-price spiral,” the term for increasing wages leading to price hikes.

And while higher wages may be in the forecast, income is currently down. The national median household income has dropped 2.9% to $67,521 from 2019 to 2020. It is the first decline since 2011, and early forecasts show only small rebounds in 2021.

“Economically, we seem to be heading for a replay of the 1970s, where sluggish growth and inflation were the primary economic trends,” Nyitray added.

The Federal Reserve is expected to announce a reduction in the number of bonds it buys each month after its meeting this week, moving away from a historic level of economic support. Inflation is at a 30 year high, up 5.4% YOY.

Former Treasury Secretary Lawrence Summers recently took to Twitter to criticize the Fed’s prediction that the current inflation level is temporary.

“Given lags in the indices, housing inflation is almost certain to soar in the coming months. With super-tight labor markets, rising strike activity, and real wages declining, increases in wage inflation are likely as well,” Summers wrote.

He’s not alone in this thinking. Mortgage Bankers Association Senior Vice President and Chief Economist Mike Fratantoni also said he expects housing inflation to continue. “We’re really pretty confident that [housing costs] are going to keep rising even after some of the things like used car prices and other things that are directly related to supply-chain constraints revert,” he said.

“Those things are going to be transitory once those supply chain issues go away. But I think the shelter price component is going to persist for a long time – like years.”