Growth in home prices nationwide reached a 15 year high in January to an annualized rate of 11.1% for the 20-city index according to the S&P CorLogic Case-Shiller National Home Price Index published in the Wall Street Journal. A separate release by the Federal Housing Finance Agency (FHA) found a 12% increase.
Home buying remained strong due to the record low interest rates and the demand for more space fueled by the COVID-19 pandemic. Demand for homes continues to outpace the supply of homes for sale that continues to drop. This has fueled the price increase coupled with low interest rates.
So the question remains is how long is this sustainable? The record low rates have since increased from the lows earlier in the year. This will put a strain on affordability for buyers, especially first-time homebuyers. This may lead to some decline in home demand; however, supply remains extremely tight and while home price increases may slow, the market is not at a significant risk of correction as even an increase in supply will be met with buyer demand.
One looming item to look out for later in the year are individuals that have defaulted on their mortgage and have not been able to enter into a forbearance agreement with their lender due to job loss or other reasons. Homeowners have until June 30, 2021 to enter into an agreement with their lender. If these homes go into foreclosure, there will be additional supply that comes on the market. The consensus in the marketplace however, suggests that there is ample buyer demand to prevent a severe correction in home prices. This is not the mortgage crisis of 2008 as homeowners are well-financed now, nevertheless, it could pose a potential risk.