Prices can advance very quickly in some areas on the back of transferred equity rather than on the basis of low-interest rates, shrinking inventories, new jobs, and worker salary increases. The same phenomenon could be observed in the Seattle MSA back in the late 1980s, as Microsoft and her satellite businesses recruited high-earning employees to the region from the East Coast, the Bay Area, and Southern California. Recent reports from Freddie Mac and other sources show that at least some urban sellers are reinvesting their proceeds further out. As we will see in this Realogics SIR Case-Shiller report, this trend has benefited sellers in the suburban and exurban areas of the Central Puget Sound, as well as more distant regions of Washington, Idaho, and Montana.
With a year-over-year increase of 25 percent, the Seattle MSA remains third nationally among the 20 cities tracked by the S&P Dow Jones CoreLogic Case-Shiller Home Price Index. Phoenix at 29.3 percent and San Diego at 27.1 percent remained first and second, respectively. According to Zillow, single-family home prices in San Diego remained 13.2 percent higher than those in Seattle in June, but prices at Phoenix were still 43 percent lower. Moreover, the median price in the Seattle MSA rose by about $8,300 more than the median price at San Diego from June 2020 to June 2021, and by about $59,000 more than the median price at Phoenix over the same interval.
Residential prices at other West Coast peer cities continued to tick up more gradually. The year-over-year increase at San Francisco expanded to 21.9 percent in June from 18.3 percent in May; at Los Angeles, to 18.7 percent from 17.0 percent; and to 19.2 percent from 17.5 percent at Portland, Oregon. Craig J. Lazzara, Managing Director and Global Head of Index Investment Strategy at S&P Dow Jones Indices, observed that “June 2021 is the third consecutive month that growth rate of housing prices set a record.”
The last several months have been extraordinary not only in the level of price gains but in the consistency of gains across the country. In June, all 20 cities rose, and all 20 gained more in the 12 months ended in June than they had gained in the 12 months ended in May. Home prices in 19 of our 20 cities (all but Chicago) now stand at all-time highs, as do the National Composite and both the 10- and 20-City indices.
Freddie Mac’s index shows widespread price ramp-ups
A competing home price index is regularly published by the FHLMC or Freddie Mac. The Freddie Mac House Price Index (FMHPI) “is based on an ever-expanding database of loans purchased by either Freddie Mac or Fannie Mae.” Comprising 382 metropolitan areas, the FMHPI is more broad-based than the Case-Shiller index, which is computed from residential sales pairs in 20 leading metropolitan areas. The FMHPI allows us to compare price growth in regional centers far away from the urban metroplexes.
This leads to some notable insights into the shift away from urban centers that have been mentioned in Craig Lazzara’s monthly Case-Shiller comments for the past year, and that was confirmed in Freddie Mac’s own report in July. What really stands out is the extent of price growth reported in those regional satellite cities and inland centers, most notably in and close to the state of Idaho. Examples include increases of 30.2 percent in Spokane, 40.3 percent in Idaho Falls, 46.3 percent in Coeur d’Alene, and 47.1 percent in Boise. Annual home price growth at these increments raises two questions that cannot be answered within the scope of this report. First, from where is the equity that is driving these price movements coming? Second, is there a political or regulatory motive to these transfers?
The extent to which low inventories play into these price increases can be seen in the comparison of active listings to closed sales over the past 12 to 14 months.
In the Seattle MSA since June 2020, the average monthly shortage of residential listings from sales was more than 108 percent. When only the cities of Seattle, Tacoma, and Everett are factored in, that shortage contracts to about 72 percent; but it widens to nearly 130 percent when those three cities are excluded from sales in the Seattle MSA. This suggests higher demand for residential homes outside the urban core.
Similar conditions are evident in more thinly populated markets around the state. At 145 percent, the shortage was proportionally higher in Thurston County than in the Seattle MSA. Other areas have shown similar patterns, but with varying shortfalls as their monthly listings range from just two to three digits. In Walla Walla, there has been an average monthly surplus, but only after what for this county amounted to a flood of new listings for sale.