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Home prices rose 3.9% in January vs. 3.7% the month before, according to the S&P CoreLogic Case-Shiller Indices. The 10-city composite index rose 2.6% vs. 2.3% in December, and the 20-city composite index rose 3.1% in January compared to 2.8% the month before. While home prices may have been heating up at the start of the year, this is likely to see a sharp reversal due to the financial instability surrounding the coronavirus pandemic in the US.

Key Takeaways

• The 10-city composite saw gains of 2.6%, up from 2.3% in December, and the 20-city composite rose 3.1% vs. 2.8% the month prior.
• Phoenix, Seattle, and Tampa continued to lead the way in home price growth.
• Home prices are forecast by some to fall by 4% by this time next year due to the impact of COVID-19 on the economy.

January gains grew even larger than those seen at the end of 2019, with the housing market picking up amid lower mortgage rates. Once again, the highest home price growth throughout the 20 cities was in Phoenix, Seattle and Tampa. Phoenix saw 6.9% gain in the 12 months through January, while  Seattle and Tampa saw gains of 5.1%. Fourteen of the 20 cities reported higher annual gains in January than the month before.

Since then, much of the economy has been impacted by the coronavirus pandemic, including the housing market. Millions of Americans are now out of work, with the situation in the labor market worsening by the day, and this limits the number of people who can afford to buy a home. Logistically, activities like open-house viewings are no longer possible in many areas due to social distancing measures, and the general economic uncertainty is likely creating a risk-off sentiment for those considering major purchases.

S&P Case-Shiller Index for Jan reported a 3.9% annual gain, up from 3.7%. The 10- and 20-City composite saw increases as well up 2.6% (2.3% prev) and 3.1% (2.8% prev) annually. https://t.co/SfZToI2ml4 pic.twitter.com/Jl7SxsuYvz

— MTS Insights (@MTSInsights) March 31, 2020

Expert Outlook

Craig J. Lazzara, managing director and global head of Index Investment Strategy at S&P Dow Jones Indices,  stated “As has been the case since mid-2019, after a long period of decelerating price increases, the National, 10-City, and 20-City Composites all rose at a faster rate in January than they had done in December. Housing prices were particularly strong in the West and South, and comparatively weak in the Midwest and Northeast.”

Lazzara went on to clarify that the data does not reflect the current economic situation, which is drastically different than what we saw in January due to the coronavirus outbreak.

Capital Economics economist Matthew Pointon said “We expect a peak-to-trough fall in prices of around 4% by early 2021, with values then flattening out for the rest of the year. Housing demand will see a sharp decline as unemployment hits record highs, and households are prevented from buying a home due to the shut down of large parts of the economy.”

Market Reaction

Gold prices have ticked downward slightly in today’s session, trading in the low $1,600s. Spot gold last traded at $1,609.75/oz, down -0.75% with a high of $1,622.50/oz and a low of $1,597.54/oz. Stock markets were mostly stronger overnight, and risk-on sentiment in the financial markets has increased compared to last week, creating a bearish environment for gold.

Monday’s news that a coronavirus vaccine may be on the way could have improved sentiment, as well as relatively upbeat economic reports from China with growth in the manufacturing purchasing managers PMI.