The August 2020 data is the latest available from Case-Shiller as I write this on October 27. The data is a 3-month moving average so what they call August is really the June-August average. Detroit data has not been updated for months.

Before we dive into the Case-Shiller data, let’s talk about why the market is so hot despite the Coronavirus.

Is there any product that is more sensitive to interest rates than houses? I don’t think so.

30-Year Fixed Rates

The blue line is the 30-year fixed mortgage rate. The red line shows the impact those lower rates have on the monthly principal and interest mortgage payment for each dollar borrowed.

For every dollar borrowed now at 2.8%, the monthly mortgage principal and interest payment is less than half of what it was in 1990 when rates were 9.8%.

When buyers can pay more, over time (2-3 years), they do pay more and bid up house prices. As economists say, lower interest rates eventually get “monetized” or “capitalized” and become higher home prices.

After the lower rates are monetized into higher prices, those buyers aren’t any better off than the buyers who bought before interest rates fell… but the new buyers owe a lot more money since house prices are a lot higher even if the monthly payment isn’t any higher.

Monthly Mortgage Payment Price

So, I take the Case-Shiller data, adjust it for inflation AND then adjust it for the lower interest rates to calculate the Real Monthly Mortgage Payment Price Index.

When we look at home prices via the lense of the inflation-adjusted monthly mortgage payment, we see that house prices today are about as cheap as they were during the cheapest years of the 1990s.

2 More Reasons

1. People with jobs aren’t spending money on travel and a lot of other things. They’re saving a LOT. If they’re willing, they’re more able to buy houses.

Interactive version.

2. Many people are more willing because Covid changed what the ideal house looks like for them – more privacy, more space, more yard, more kitchen.

Case-Shiller Update

Now back to the latest Case-Shiller data.

Since last June, house prices in Phoenix have been appreciating faster than in any of the other 20 metros covered by Case-Shiller. Real house prices increased 8% over the last year in Phoenix. 8% after inflation is a HOT real estate market.

Real, inflation-adjusted house prices didn’t fall from August 2019 to August 2020 in any of the metros covered by Case-Shiller .

For the U.S. as a whole, real, inflation adjusted house prices were up 4%.

Tell me in the “Comments” what you think.

House Price Momentum

House prices increased more over the last 12 months compared to the previous 12 months in 18 cities covered by Case-Shiller. Prices were flat in Chicago. Prices didn’t fall in any of the Case-Shiller cities.

Home Prices

The Case-Shiller numbers look at changes in prices for the same houses. They don’t catch changes in the mix of houses sold. In Phoenix where I live, the mix of houses sold has shifted a bit toward larger and more expensive houses. Case-Shiller doesn’t catch changes in the mix which is nice.

Price Appreciation

Phoenix had 10% 12-month house (nominal) price appreciation.

Seattle was #2 with 8% appreciation. If you play with the interactive graph, you’ll see that Seattle home prices have been more erratic than any other metro. It was the hottest market for a couple of years but then prices actually fell slightly year-over-year in 2019. Now, Seattle is back near the top for house price appreciation!

Chicago and New York had the lowest 12-month (nominal) appreciation.

Is there any product more sensitive to interest rates than houses? Let me know in the comments.

To see more about the wild Phoenix housing market, check out my other website, Arizona Real Estate Notebook.

Note. You can find interactive versions of these charts for all 20 Case-Shiller metros here.

Note. This post was written on October 27, 2020 but the interactive graphs will be continually updated.

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