Prices are not only rising in the German real estate market – US residential real estate also increased in value in 2020. Are worries about an upcoming US housing bubble appropriate or will developments continue to support the economy?
Even during the corona pandemic, purchase prices for residential property in Germany rose as usual in 2020 – a similar development was also observed in the USA: According to the S & P / Case-Shiller house price index, prices rose as sharply in October as they did in 2014.
S & P / Case-Shiller house price index: prices eight percent higher than in the same period last year
Said index is calculated once a month and has reported annual price increases since 2012 – but the publication from the beginning of February is particularly astonishing: According to data from S & P / Case-Shiller, the house price index in October 2020 was 7.9 percent higher in the 20 large metropolises than in October of the previous year 2019, which corresponds to an increase of 1.6 percent compared to September and, according to Manager-Magazin, is around one percent above the expected level. In November prices were even nine percent higher than in the same period of the previous year.
The US Federal Housing Finance Agency (FHFA) also regularly publishes a house price index and focuses in particular on rural regions, as Dr. Ulrich Stephan, chief investment strategist for private and corporate customers of Deutsche Bank, explains in the “Newsletter am Morgen”. According to the FHFA, the house price index for rural areas in November was a full 11 percent above the previous year’s level and thus even higher than the index for urban areas.
Phoenix, Seattle, and San Diego were at the top in 2020 – will they stay there in 2021?
According to S & P / Case-Shiller, Phoenix recorded the highest year-on-year increase in the house price index of all 20 major metropolises in October 2020, at 12.7 percent, followed by Seattle (11.7 percent) and San Diego (11.6 percent). The realtor.com realtor.com website does not provide exact figures, but according to this source, technology centers in the US could be one of the most popular regions for residential property purchases in 2021. For example, San Jose in Silicon Valley should attract many buyers in 2021, which could lead to a sharp rise in prices – because, according to Deutsche Bank, the vacancy rate for US homes is already just 0.9 percent. This is the lowest value since records began in 1956 and, of course, increases competition.
Deutsche Bank expert: Price increase is due to supply deficit
Dr. Stephan from Deutsche Bank explains that in view of these numbers, some market participants are concerned about a possible real estate bubble and fear that it could burst again if interest rates rise – which would damage the US economy. He himself, however, is certain that a supply deficit associated with the low vacancy rates and the increased demand for living space associated with the pandemic is the reason for the rapid price increases. The proportion of mortgages with variable interest rates has also decreased significantly since the crisis on the property market in 2007 and is now only three percent. Therefore, the Deutsche Bank expert writes in summary: “The real estate market should therefore support the US economy in the further course of the year.”
Image Sources: Billion Photos / Shutterstock.com