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Chart of the Month |  Home Prices Are Up 32 Percent In Five Years – And Still Climbing

August 5, 2021 |
1 minute read
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Housing demand appears to be slowing down in the first half of 2021, yet home prices have continued to climb at an accelerated pace. This month’s chart highlights the supply and demand factors driving single-family home prices, which have increased by 17 percent versus last year and 32 percent over the last five years.

On the demand side, the National Association of Home Builders (NAHB) reports a cooling in traffic by prospective buyers this year as compared to the second half of 2020 amid a deceleration in growth and higher prices. Although activity remained at historically high levels, mortgage applications from new home buyers have declined due to limited inventory. The NAHB Housing Market Index has also fallen from its November 2020 high, which is largely attributable to supply-side challenges including the availability and cost of building products.

On the supply side, inventories remain tight across a range of metrics including the number of active listings and days on the market for existing homes for sale. The number of days a home is on the market has fallen from an average of 72 days before the pandemic to 37 as of June 2021. In addition, the number of current active listings is lower by 52 percent compared to December 2019 and 65 percent lower relative to levels five years ago. Furthermore, housing completions remain below average after adjusting for the size of population.

Shipping bottlenecks and higher lumber prices are holding back construction, contributing to the higher prices of the limited supply of homes. Even though lumber prices have declined by 62 percent from the meteoric highs in early May, they remain 25 percent higher than December 2019. However, strong pricing power could enable builders to offset rising input costs and increase supply.

As a result of the significant recent home-price appreciation, housing affordability is approaching the lows last seen in 2008. The National Association of Realtors reported housing affordability has declined versus last year across all four regions within the United States with the biggest drop being in the Northeast. Despite the lack of inventory and higher prices, lower mortgage rates compared to last year have remained a key driver of U.S. housing demand and are crucial to the stability of the market as home prices reach (and potentially surpass) all-time highs.

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Ivo C. Nenin

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Ivo C. Nenin

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Disclaimer

Certain information contained herein has been obtained from or is based on third-party sources and, although believed to be reliable, has not been independently verified. Such information is as of the date indicated, if indicated, may not be complete, is subject to change and has not necessarily been updated. No representation or warranty, express or implied, is or will be given by The Common Fund for Nonprofit Organizations, any of its affiliates or any of its or their affiliates, trustees, directors, officers, employees or advisers (collectively referred to herein as “Commonfund”) or any other person as to the accuracy or completeness of the information in any third-party materials. Accordingly, Commonfund shall not be liable for any direct, indirect or consequential loss or damage suffered by any person as a result of relying on any statement in, or omission from, such third-party materials, and any such liability is expressly disclaimed.

All rights to the trademarks, copyrights, logos and other intellectual property listed herein belong to their respective owners and the use of such logos hereof does not imply an affiliation with, or endorsement by, the owners of such trademarks, copyrights, logos and other intellectual property.

To the extent views presented forecast market activity, they may be based on many factors in addition to those explicitly stated herein. Forecasts of experts inevitably differ. Views attributed to third-parties are presented to demonstrate the existence of points of view, not as a basis for recommendations or as investment advice. Market and investment views of third-parties presented herein do not necessarily reflect the views of Commonfund, any manager retained by Commonfund to manage any investments for Commonfund (each, a “Manager”) or any fund managed by any Commonfund entity (each, a “Fund”). Accordingly, the views presented herein may not be relied upon as an indication of trading intent on behalf of Commonfund, any Manager or any Fund.

Statements concerning Commonfund’s views of possible future outcomes in any investment asset class or market, or of possible future economic developments, are not intended, and should not be construed, as forecasts or predictions of the future investment performance of any Fund. Such statements are also not intended as recommendations by any Commonfund entity or any Commonfund employee to the recipient of the presentation. It is Commonfund’s policy that investment recommendations to its clients must be based on the investment objectives and risk tolerances of each individual client. All market outlook and similar statements are based upon information reasonably available as of the date of this presentation (unless an earlier date is stated with regard to particular information), and reasonably believed to be accurate by Commonfund. Commonfund disclaims any responsibility to provide the recipient of this presentation with updated or corrected information or statements. Past performance is not indicative of future results. For more information please refer to Important Disclosures.