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US house prices rose at record rate in June

The rise of US house prices broke another record in June as buyers competed for a limited inventory of homes.

The S&P CoreLogic Case-Shiller national home price index rose 18.6 per cent from June 2020. That was the biggest year-on-year price growth in more than 30 years of data, and the third consecutive month of record gains.

The US housing market took off last year as Americans borrowed at low mortgage rates to purchase roomier, suburban dwellings while working remotely during the pandemic. The strong demand, coupled with tight inventory, rising lumber costs and labour and material shortages, combined to push home prices to new highs.

US policymakers have closely watched the trend, with the Federal Reserve’s purchases of mortgage-backed securities attracting particular scrutiny, as some argue that the central bank’s policies have poured fuel on the rally and driven up the cost of housing.

Fed chair Jay Powell has previously pushed back against the idea that asset purchases have disproportionately benefited the housing market. Last week he delivered his strongest signal yet that the Fed could start dialling back its pandemic-era stimulus programme this year.

Line chart of S&P/Case-Shiller US national home price index (% YoY change) showing US home prices grew at record pace in June

While lumber markets have weakened — Doug Yearley, chief executive of home builder Toll Brothers, recently told CNBC that softer prices would save $40,000 per home — other factors continue to make housing less affordable.

The National Association of Realtors’ housing affordability index fell in June to its lowest level since November 2018, when mortgage rates were about 200 basis points higher, Nancy Vanden Houten, economist at Oxford Economics, noted.

“The shortage of homes for sale at lower price points has been particularly acute, as many homes have been scooped up by investors and converted into rental properties,” Vanden Houten said.

S&P’s index of 20 leading US cities rose 19.1 per cent year on year, exceeding expectations of an 18.5 per cent rise, according to economists surveyed by Reuters. Phoenix, San Diego and Seattle recorded the highest gains, with each city recording price increases of at least a quarter from June 2020.

More recent data indicate that high prices and limited stock have taken some momentum out of the housing market.

Higher construction costs and elevated home prices sent homebuilder confidence to its lowest level in more than a year in August. A forward-looking indicator of home sales, the US pending home sales index, declined for the second consecutive month in July.

American consumers signalled that their spending intentions for homes and major appliances have diminished amid concerns about the spreading Delta coronavirus variant and inflation.

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