The CoreLogic Home Price Index (HPI) showed that national home prices reached new heights this past October, exceeding the previous year’s peak by 3%. What’s more, CoreLogic’s 2024 HPI forecast suggests a continued increase in prices that will average about 3% for the year.

Some markets saw even larger price gains over the course of last year. Miami, for example, has barely seen a dip in prices and ranked as the No. 1 large market for appreciation for 17 consecutive months. Prices in Miami increased by 11% last year for cumulative growth of 61% since the onset of the COVID-19 pandemic.

The rate of home price growth was unexpected given the loss of homebuyer purchasing power and declines in affordability brought on by higher mortgage rates. While a lack of existing homes for sale explains a lot of the pressure that drove home prices higher, a migration of higher-income households from more expensive markets to comparatively affordable markets has also played a role.

According to CoreLogic data, cross-metro migration remained elevated in 2023 after picking up pace at the onset of the pandemic. In 2019, 16% of homebuyers came from outside the metro area they purchased in. In each of the past two years, however, this share reached 23%. In other words, one in four homebuyers were from another region.

What’s more important is that the income of an in-migrating buyer tends to be higher (and sometimes a lot higher) than that of a local buyer. In Miami, in-migrating buyers have average incomes that are 59% higher than that of local buyers. The gaps in Phoenix and San Diego are 37% and 26%, respectively.

Although these three metros are interesting examples of already-pricey markets where in-migration added fuel to home price appreciation, the large income-gap differential exists in many other markets. This is particularly true of cities that tend to rank as more affordable and have recently seen considerable in-migration from other parts of the country. As the chart on this page shows, the income gap is at least 60% in Des Moines, Iowa; Grand Rapids, Michigan; and Louisville, Kentucky.

Many of the largest metros for out-migration also rank among the top markets for home equity accumulation. Los Angeles, San Jose, San Francisco, New York City and Seattle have some of the highest numbers of outbound mortgage applicants — and the average equity for a mortgaged home in these areas ranges from about $450,000 in New York to nearly $1.2 million in the Bay Area.

If an in-migrating homebuyer sold a home in one of these locations, they also had a considerable amount of cash for purchasing a new home. As CoreLogic data suggests, all-cash transactions have been on the rise. They comprised nearly 40% of all sales in fourth-quarter 2023, up from 33% in Q4 2019. ●

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Compared to the pre-Great Recession period when existing single-family homes for sale reached 4 million, current inventory is trending at 25% of that level, or roughly 1 million homes for sale. In addition, with mortgage rates remaining elevated, there’s no reason to believe that existing inventory shortages won’t persist, particularly in markets where construction of new homes has been limited.

Nevertheless, as with many housing trends these days, there is a lot of variation across U.S. metro areas in the rates at which new listings are hitting the market. According to a CoreLogic and Multiple Listing Service database, while there were about 28% fewer listings from May through July 2023 compared to the same period in 2022, some markets had more notable declines in new listings.

The largest slowdowns in new listings are evident in Western markets, particularly in the states of California, Arizona, Nevada and Washington. For example, when looking at the metros with the largest annualized declines, eight of the top 10 are in California, where the yearly declines in new listings exceeded 30%. This is worrisome for the region as new construction activity has lagged for many years. For instance, there were about 15,000 new homes sold in all of California during the first seven months of this year, or the same number of new homes that were sold in Houston alone during the same period.

As a result of fewer homes available for sale in these Western states, CoreLogic’s home price index forecast calls for price appreciation to be relatively higher in these markets. In July 2024, the estimated year-over-year price gain is expected to be about 6% in most Western states, including Colorado, Idaho, Utah, Nevada, Oregon, California and Washington.

On the other hand, there were 18 metro areas that recorded annualized increases in new listings from May through July. The markets with the largest increases (as shown on the accompanying chart) included Flagstaff, Arizona, and Killeen, Texas. Multiple smaller markets in Michigan and Georgia also saw for-sale inventory expand during this time frame.

The proximity of Flagstaff and Killeen to larger, warm-weather tourist destinations could explain some of the growth, as could associated declines in demand for second homes, vacation homes and Airbnb rentals in these locales. But other markets that had high Airbnb activity during the COVID-19 pandemic did not see the same inventory increases. And while Michigan is not a top destination for buyers of second homes, it was a popular Midwest location during the pandemic as it offered access to lakes and other outdoors amenities. It’s not clear, however, that the pandemic alone explains the surge in new listings across some of Michigan’s metro areas.

Importantly, supply conditions play a major role in an area’s affordability metrics. As a result, regions where new construction is likely to remain subdued will face continued home price pressures, a lack of affordability and potential population losses. Conversely, regions where new construction is meeting demand for both existing households and in-migrating residents are expected to see less pressure on home prices and better affordability. For example, due to the significant share of new construction that’s occurring in Texas, CoreLogic’s yearly home price appreciation rate for July 2024 in the Lone Star State is expected to be 1.4%, or less than one-quarter of that in Western states. ●

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Also, the same inflationary pressures that the U.S. has been struggling with have impacted the Canadian economy, where the annual rate of inflation peaked above 8% in the summer of 2022 — the same time that U.S. inflation surpassed 9%. As a result, both countries have undergone an aggressive monetary tightening cycle, which has had an unfavorable impact on mortgage rates and the respective housing markets. In the U.S., existing home sales declined by 18% from 2021 to 2022 while Canada experienced a 25% pullback.

Nevertheless, there are some differences in the neighboring nations’ mortgage markets that have led to diverging trends since monetary tightening began. Four main differences, in fact, exist between the two markets.

First, Canada relies on five-year mortgages amortized over 25 years, meaning that the loan balance has to be refinanced at the end of the term. This exposes the borrower to mortgage rate hikes, which have been steep over the past year. Second, Canadian mortgages commonly have prepayment penalties that prevent borrowers from refinancing when interest rates fall, although loans are attached to borrowers and are thus transferable to another property.

Third, mortgage interest is not deductible in Canada. And fourth, Canadian banks (in sharp contrast to U.S. banks) generally keep loans on their balance sheets. This has impacted the difference in the mortgage rate spread across the two nations, with rates now somewhat higher in the U.S. than in Canada.

Given the differences in mortgage finance systems, Canadian borrowers tend to feel less locked in at low rates than U.S. borrowers, which impacts the availability of homes for sale and consequent sales activity. In the U.S., the inventory of existing homes for sale has been declining for the better part of a decade. This year, the number of new listings entering the market has been trending some 50% below the pre-pandemic levels of 2019 (and also well below 2022 levels) as homeowners are disincentivized to give up their historically low mortgage rate and sell their home.

As the chart on this page shows, active inventory across most U.S. markets is now at the lowest levels in the history of CoreLogic’s data series. This lack of inventory has considerably constrained home sales in 2023, which have fallen to the lowest levels in a decade. On the other hand, the chart also illustrates that Canada’s active inventory is back to pre-pandemic levels. As a result, home sales are forecast to exceed 2019 figures and come close to last year’s levels. Conversely, the U.S. market is expected to see another double-digit decline of about 17% in total home sales this year.

Nevertheless, differing mortgage systems and varying constraints on the availability of homes for sale have contrarily impacted home prices in the two countries. While annual rates of home price appreciation have decelerated in both nations, price growth in the U.S. stabilized at about 2% this past spring, according to CoreLogic data. With strong monthly gains recorded thus far in 2023, year-over-year growth is likely to end the year in the 4% range.

In Canada, meanwhile, a major house price index began recording annualized declines in December 2022, with the yearly pullback topping 8% as of April 2023. And while spring home prices north of the border were strong, it will take some time for the index to start recording positive yearly gains. ●

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Mortgage rates have continued along their volatile path since the beginning of the year with instability in no small part now being driven by turmoil in the banking system. On the other hand, the availability of existing homes for sale continues to churn along at historically low levels and is also being impacted by mortgage rate gyrations more so than at any time in recent history.

The reason that the supply of existing homes for sale is heavily dependent on mortgage rates is because 95% of borrowers with outstanding mortgage debt have a rate below 5%, according to CoreLogic data. More than 80% have a rate below 4% while nearly half (42%) of existing mortgages are locked in at rates below 3%. Given that the current mortgage rates for the vast majority of potential home sellers are significantly higher than their locked-in rate, there is no incentive for them to sell their home and give up their super low rate.

The chart on this page illustrates the evidence of the impact of mortgage rates on for-sale inventory. When rates started creeping up in the summer of 2022, the level of new for-sale listings started to decline notably. In the first six months of last year, the number of new listings entering the market was only 3% below the levels seen during the same period in 2021, CoreLogic data shows.

But as mortgage rates surged in July 2022, the number of new listings began to trend 20% below 2021 levels and dropped by more than 30% by the end of the year. The early weeks of 2023 saw barely any improvements in new listings, which were about 20% below 2022 levels and more than 30% below pre-pandemic levels of 2019 and early 2020.

While the dearth of homes for sale has been the Achilles’ heel of the housing market, particularly for those regions that have had very little new construction activity, the silver lining for the remainder of this year — which already appears fraught with more volatility and uncertainty — is that low inventory will keep home price declines at bay. This is especially important when comparing the current banking crisis to the events that led up to the Great Recession and the home price collapse that followed.

A key difference in today’s housing market is that borrowers have locked in historically low-rate mortgages, most of which are 30-year fixed loans. Current borrowers have built up nearly four times as much home equity than in the pre-Great Recession days. Leading up to that downturn, some 24% of outstanding mortgages were adjustable-rate loans that borrowers could no longer afford following the rate reset, either due to loan characteristics or job loss. Today, however, less than 5% of outstanding mortgages have adjustable-rate features.

While the low supply of homes for sale may help the market at this point of the housing cycle — given an anticipated recession and the potential fallout from the banking crisis — it does not bode well for the market in the long term since it reduces affordability and market velocity. In addition, the availability of entry-level homes for first-time buyers will remain low as current owners hold on to their homes for longer. ●

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