Home-price growth climbed to a new record in May, as low mortgage interest rates continued to drive robust homebuying demand.
The S&P CoreLogic Case-Shiller National Home Price Index, which measures average home prices in major metropolitan areas across the nation, rose 16.6% in the year that ended in May, up from a 14.8% annual rate the prior month. May marked the highest annual rate of price growth since the index began in 1987.
Home-price growth has accelerated in the past year as buyers competed fiercely for a limited number of homes on the market. The Covid-19 pandemic spurred households to seek out more living space, and interest rates have held near record lows. Many homes are getting multiple offers and selling above asking price.
The median existing-home sales price in June rose 23.4% from a year earlier to $363,300, a record high, the National Association of Realtors said earlier this month.
“It’s an incredibly strong housing market,” said Hilla Sferruzza, chief financial officer at home builder Meritage Homes Corp.
The homebuying frenzy has slowed slightly this summer as more homeowners have listed their houses for sale and high prices have deterred some buyers. Fast-rising prices are making homes less affordable, especially to first-time buyers. But there is still more demand than supply, industry executives and economists say.
“There’s probably some sticker shock happening out there,” Ms. Sferruzza said. But as some buyers are priced out of the market, “at least for now, there’s enough other folks that are willing to step into their shoes,” she said.
Builders are struggling to keep up with demand due to labor shortages and volatile material costs. Many builders are capping sales to manage their costs and make sure they don’t sell more homes than they can build.
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New-home sales fell 6.6% in June from May, the third straight month of declines, the Commerce Department said this week.
The Case-Shiller 10-city index gained 16.4% over the year ended in May, compared with a 14.5% increase in April. The 20-city index rose 17%, after an annual gain of 15% in April. Price growth accelerated in all 20 cities.
Economists surveyed by The Wall Street Journal expected the 20-city index to gain 16.4%.
Phoenix had the fastest home-price growth in the country for the 24th straight month, at 25.9%, marking the longest any city has held the top spot for annual price growth since the index’s inception. San Diego posted the second-fastest growth, at 24.7%. Charlotte, N.C., Cleveland, Dallas, Denver and Seattle all recorded record-high annual price gains.
A separate measure of home-price growth by the Federal Housing Finance Agency also released Tuesday found an 18% increase in home prices in May from a year earlier, a record in data going back to 1991.
Kayla Jenkins and Tony Hayes started shopping for their first home in Alexander City, Ala., this year. Homes in their price range usually sold within days of going on the market, Ms. Jenkins said. When competing with investors who could pay cash, “we just didn’t stand a chance,” she said.
They bought a three-bedroom house in May for $105,000 after another offer on the house fell through. “We literally just had to settle for something, because we didn’t have much to choose from,” Ms. Jenkins said.