S&P Dow Jones issued their April 2021 CoreLogic Case-Shiller Home Price Index as Seattle sweltered under the heat dome in late June. The index revealed historic residential price increases across the board, with just Chicago falling short of a 10% year-over-year increase. Seattle and San Diego, with gains of 20.2 % and 21.6 %, respectively, continued to outperform their West Coast counterparts. This was the most significant increase in the index's history for Seattle. With a 22.3 % increase, Phoenix prices surpassed the rest of the country. We'll look at three factors in this report that are driving and shaping residential prices in the Seattle metro area: property inventory, mortgage interest rates, and the ongoing transition between urban and suburban parts of Central Puget Sound.

Home prices continue to climb

In addition to the aforementioned rates of increase for the main cities, the CoreLogic Case-Shiller index[1]data published by S&P Dow Jones on 29 June showed year-over-year home price rise of their 20-City Composite Index falling just short of 15.0%. Portland, Los Angeles, and San Francisco on the Pacific Coast had their indexes climb by 15.4 %, 14.7 %, and 15.1 %, respectively. This was the first month since July 2019 that San Francisco did not lag behind her West Coast counterparts (Charts A and B).

S&P Dow Jones Indices Managing Director and Global Head of Index Investment Strategy Craig J. Lazzara described the index gains as "broadly-based: all 20 cities rose, and all 20 gained more in the 12 months concluded in April than they had gained in the 12 months ended in March."

April's performance was simply outstanding. The National Composite's 14.6 % growth is the strongest reading in more than 30 years of S&P CoreLogic Case-Shiller statistics. Housing prices rose in all 20 cities; price gains accelerated in all 20 cities, and price growth in all 20 cities were in the top quartile of historical performance. Price increases were in the top decile in 15 cities. Charlotte, Cleveland, Dallas, Denver, and Seattle joined the National Composite in posting their all-time biggest 12-month gains.[2]

Two accelerants, one shaping component

A year ago's weak base effect from uncertainty certainly led to quick price increases this year. These external influences, however, nevertheless shape market behavior. We examine three questions: historically low inventories, mortgage interest rate shifts, and post-COVID migration patterns.

Inventory levels are still at or near all-time lows

The Seattle MSA has been a seller's market for nearly a decade, per the usual definition of six months in inventory. In the region's residential inventory, June 2021 marked the end of a year that lasted less than a month. While driving up prices, this situation has started an unbroken cycle in which homeowners who aren't forced to sell may be hesitant to do so. Some people who would otherwise contemplate a move-up purchase are apprehensive that once their current home sells, no homes that suit their requirements would be available. This keeps more homes off the market, which may explain why homeowner tenure has begun to rise in the region, reversing a decade-long trend. Brokers should be prepared to explain these market dynamics and have a plan in place to speed the sale of the client's present house as well as the purchase of the client's desired home.

Mortgage interest rates have reached a new low

A higher loan rate may encourage prospective homebuyers, who have deferred buying, to act. In April, Freddie Mac forecasted that mortgage interest rates will continue to rise this year and into 2022. June data for 30-year and 15-year fixed-rate mortgages appeared to confirm this expectation.

‘Mortgage rates have risen above three % for the first time in ten weeks,’ said Sam Khater, Freddie Mac’s Chief Economist. ‘As the economy progresses and inflation remains elevated, we expect that rates will continue to gradually rise in the second half of the year. For those homeowners who have not yet refinanced—and there remain many borrowers who could benefit from doing so—now is the time.’[3]

The crisis in the cities has passed, and purchasers are now identifying opportunities

It's been a year since the commotion in the streets of Capitol Hill last July. With the region's workforce embracing work-from-home policies implemented last year, we're revisiting the issue of suburban and exurban flight as it relates to Seattle and its neighbors. Craig Lazzara repeated his inconclusive remarks on home purchasers leaving towns in the April Case-Shiller report, which he had made in the previous eight months:

We previously stated that much of the strength in the US housing market is due to potential purchasers moving from city flats to suburban properties as a result of the COVID outbreak. The evidence from April continues to support this hypothesis. This increase in demand could simply be an acceleration of purchases that would have happened otherwise over the following few years. Alternatively, there could have been a long-term shift in locational preferences, resulting in a permanent shift in the housing demand curve. This question will require more time and data to investigate. [4]

Monthly home sales in the three-county Seattle MSA are outnumbered by home sales in the MSA, while beyond those cities, home sales are outnumbered by home sales in the MSA (Chart C). This isn't a new trend; we've been tracking some form of suburban and exurban mobility since 2018. However, figures from the Northwest Multiple Listing Service (NWMLS) for March and April 2021 suggest an even greater surge in property sales in these more urban areas (Chart D).

We can attribute these new urban purchasers to the sense of buying opportunities following negative media coverage over the last year. They could also signify latent demand, as people have given up waiting for inventories to rise or for price inflation to decrease. Regardless, these year-over-year increases in monthly sales of more than 20% represent a counter-indicator to the outflow of purchasers to the Greater Puget Sound region's suburbs and exurbs.

For more details on the April 2021 Case-Shiller Index results, download the S&P Dow Jones Case-Shiller summary report. For details on the market implications of our reports for homes in your neighborhood, contact a local Realogics Sotheby’s International Realty (SIR) broker.  

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[1] Published by S&P Dow Jones, the Case Shiller Index surveys resales of residential homes in the Seattle MSA. The index notably does not account for condominium sales. “S&P CoreLogic Case-Shiller Index Shows Annual Home Price Gains Surged to 14.6% in April,” S&P Dow Jones, New York, 27 April 2021.

[2] Ibid.

[3] “Mortgage Rates Rise Above Three %,” press release, Freddie Mac, 24 June 2021.

[4] S&P Dow Jones, New York, 27 April 2021.