Housing Update

Two reports on home prices arrived this morning, one for the Case-Shiller index and another from the FHFA (a government agency that regulates Fannie Mae and Freddie Mac). Both rose in March, and housing prices are up 6.5% and 6.8%, respectively, in the past year.

We think price gains will continue in the year ahead, although not every month, and probably at a slower pace than seen over the past year. Just like very loose monetary policy back in 2020-21 permanently lifted the general price level for goods and services – most of the home price gains during that period will likewise end up being permanent. Some regions around the country (for example Naples, FL) exceeded those gains because of the peculiar dynamics of COVID. They are therefore vulnerable to some pullback, but we are not in a bubble like we saw prior to the financial crisis of 2008-09.

Through March, the Case-Shiller index is up 47.4% and the FHFA index is up 50.2% compared to February 2020 (pre-COVID). Meanwhile, the Consumer Price Index through March was up 20.4% vs February 2020 levels. But other factors are at work in the housing market. For example, over the same period the price index specific to constructing new single-family homes was up 37.9% as commodity and labor costs rose, outstripping general inflation.