August 31, 2021

The Case Shiller Index of Home Prices in 20 cities jumped 1.8% in June after having risen 1.8% in May..  Over the past year home prices have risen 19.1%.

A broader index  for the entire U.S. — which would include a large number of smaller cities — is rising at a virtually identical 18.6% pace.

Craig J. Lazzara, Managing Director and Global Head of Index Investment Strategy at S&P DJI. noted that, ““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.”

What about housing affordability?  Home prices are rising quickly.  .  One might think that  housing is becoming much less affordable.  That is not really the case for a couple of reasons.  First, mortgage rates remain at a near record low level of 3.0%.  And, second, consumer income is growing.  As a result, housing remains affordable with the index of housing affordability at 146.  This means that potential buyers have 46% more income than is necessary to purchase a median-priced home.  At the peak of the housing boom in 2006 consumers had just 14% more income than necessary.  Housing was very expensive then.  That is not the case now.

Having said that, potential buyers at the low end of the market are getting priced out.  Higher down payments and rising monthly payments are causing potential buyers for homes priced at or below $300,000 to defer their purchase.  Their income is just not keeping pace with the dramatic price increases.  But homes priced above $500,000 continue to sell quickly.   The supply of existing homes available for sale has increased slightly as some sellers take advantage of the opportunity to sell their home at an inflated price, but the inventory is still far too low to satisfy demand.  If inventories continue to climb some of the intense price pressure will dissipate.

We expect 8.9% GDP growth in Q3 and 10.5% growth in Q4.  That would give us  8.1% growth for 2021 and we expect 5.1% GDP growth in 2021..  American consumers continue to spend at a vigorous pace as the $1.9 trillion fiscal stimulus package has put cash in consumers wallets. Businesses are still hiring as rapidly as they can, but are being limited to some extent by generous unemployment benefits.  And many businesses are taking advantage of technology to boost both sales and profits.

Stephen Slifer

NumberNomics

Charleston, SC