The recent data released on the S&P CoreLogic Case-Shiller U.S. National Home Price Index revealed that home prices have reached their highest level ever, despite the fact that mortgage interest rates have been on the rise. The three-month running average ended in June showing that prices nationally were 5.4% higher than they were in June 2023. This increase in home prices was indeed a record high for the index, however, the annual gain was slightly smaller compared to the previous month’s reading.
New York emerged as the city with the highest annual gain among the 20 cities covered in the report, with prices climbing by 9% in June. Following closely behind were San Diego and Las Vegas with annual increases of 8.7% and 8.5% respectively. On the other hand, Portland, Oregon only saw a meager 0.8% annual rise in June, marking it as the city with the smallest gain among the top cities mentioned in the report.
Despite the sharp rise in mortgage rates from April through June, which is the period averaged on the index, home prices continued to increase. Typically, when mortgage rates rise, home prices tend to cool down. However, the average rate on the 30-year fixed mortgage started just below 7% in April and shot up to 7.5% by the end of the month. Although rates fell back under 7% in July and are now around 6.5%, the decline has not been enough to entice buyers back into the market.
Housing affordability has been a central topic in the recent election cycle, prompting the report to analyze home values by price tier in each city’s market. The data showed that over the past five years, 75% of the markets covered witnessed low-price tiers rising faster than the overall market. For instance, the lower tier of the Atlanta market outperformed the middle and higher tiers by rising 18% faster. Similarly, New York’s low tier experienced the largest five-year outperformance, surpassing the overall New York region by nearly 20%.
As we head into the fall season, home prices are expected to ease a bit due to seasonal factors and increased inventory on the market. However, it is unlikely that prices will drop significantly, and they are projected to remain higher than they were last fall. Some potential buyers are holding off in the hopes that home prices will decrease, not just interest rates. This hesitancy indicates a possible shift in the market dynamics as buyers weigh their options in the face of rising home prices and mortgage rates.