Housing Update

Home prices have risen significantly, with the Case-Shiller index up 6.5% and the FHFA index up 6.8% over the past year. While price increases are expected to continue, they may occur at a slower pace.

The strong price gains since 2020-21 are likely to be permanent, though certain markets may face pullbacks. Since February 2020, home prices have surged by 47.4% and 50.2% for the Case-Shiller and FHFA indexes, respectively, compared to a 20.4% rise in the Consumer Price Index.

The housing market is hindered by a chronic lack of supply due to regulatory challenges and increased construction times. The duration from permit to construction has increased significantly, causing new home sales to remain subdued, as existing homeowners are reluctant to sell due to low mortgage rates locked in during the pandemic.

Additionally, rising immigration further underscores the need for increased housing supply. Overall, despite potential recessions, underbuilding suggests a resilience in the housing market that could help it withstand economic downturns better than in the past.