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U.S. home prices reached record high this summer

Homebuyers facing challenges in hot market
Homebuyers facing challenges in hot housing market 06:55

U.S. home prices jumped by a record amount in June as homebuyers competed for a limited supply of available houses, the latest evidence that the housing market remains red-hot.

The S&P CoreLogic Case-Shiller 20-city home price index soared 19.1% in June compared with a year earlier, the largest increase on records dating back to 2000. The annual price gains in June were higher in all 20 cities than they were in May. Prices are now at record highs in 19 of the 20 cities, with the exception of Chicago.

"The last several months have been extraordinary not only in the level of price gains, but in the consistency of gains across the country," said Craig Lazzara, managing director of index investment strategy at S&P DJI.

Prices rose in June by the most in Phoenix, where they soared 29.3% compared with a year earlier, followed by San Diego, with a 27.1% increase, and Seattle, at 25%.

The COVID-19 pandemic has driven many Americans to seek homes in suburban areas that provide more space and are not as congested as apartments in big cities. Yet many other homeowners have been reluctant to sell during the pandemic, and the construction of new homes has foundered amid shortages of materials, land and labor.

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That left just 1.32 million existing homes for sale in July, down 12% from a year earlier. Yet there are signs that the high prices are encouraging more people to sell, as the number of available homes rose in July compared with the previous month.

Homes increasingly "unaffordable"

Another challenge for would-be homebuyers is competition from investors, including some Wall Street firms, who are purchasing single-family homes for rent. There are 20% fewer houses for sale today than a year ago, and the few houses that are available are increasingly going to cash-rich buyers or investors. 

High-end buyers are flush with money, thanks to record-high stock prices and a strong recovery for professional workers, who were less likely to lose their jobs in the pandemic than working-class employees. Nearly a quarter of all existing home sales in July were all-cash sales, up from 16% a year earlier. That's pushing up home prices, with the result that 4 in 10 counties nationwide are deemed "unaffordable" for homeownership.

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Many first-time homebuyers, who have fewer resources, are finding they can't compete and have to keep renting. 

There are signs that the high prices are cooling sales a bit. Sales of existing homes rose 1.5% in July from a year earlier, a separate report by the National Association of Realtors showed last week. That's a much slower pace than the previous month. And the number of contracts signed to buy homes, a leading indicator of final sales, has fallen for two straight months.

"While house price growth continued to boom, other data suggest a slowdown is on the horizon," Sam Hall, assistant property economist at Capital Economics, said in a report. Hall points to a 25% drop in mortgage applications and statistics from Fannie Mae reporting showing that only 28% of households, the lowest in a decade, that think now is a good time to buy a home.

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