In recent months, the S&P CoreLogic Case-Shiller U.S. National Home Price Index has reported that home prices have reached the highest level ever, despite mortgage interest rates on the rise. On a three-month running average ending in June, prices nationally were 5.4% higher than in June 2023. This increase is a record high for the index, although the annual gain was slightly smaller compared to the previous month. The index’s 10-city composite rose 7.4% annually, and the 20-city composite increased by 6.5% year over year.
Among the 20 cities covered by the index, New York saw the highest annual gain in home prices, with a 9% increase in June. This was followed by San Diego and Las Vegas, with annual increases of 8.7% and 8.5%, respectively. On the other hand, Portland, Oregon, saw just a 0.8% annual rise in June, which was the smallest gain among the top cities. These regional variances highlight the diverse trends in the housing market across different parts of the country.
Housing affordability has been a significant topic of discussion, especially during the current election cycle. The latest report by the index broke down home values by price tier, dividing each city’s market into three tiers. Over the past five years, 75% of the markets covered showed low-price tiers rising faster than the overall market. This indicates a growing disparity in home prices across different segments of the market, with lower-priced homes outpacing higher-priced properties in terms of appreciation.
Despite the sharp increase in mortgage rates from April through June, home prices continued to rise. Typically, when interest rates go up, home prices tend to cool off. However, the average rate on the 30-year fixed mortgage stayed above 7% during that period, before falling back slightly in July. Even with the decline in rates, there is evidence that buyers are still hesitant to enter the market, with some waiting for home prices to decrease before making a purchase.
Looking ahead, home prices are expected to ease slightly going into the fall due to seasonal factors and increased inventory on the market. However, a significant drop in prices is unlikely, and they are projected to remain higher than they were the previous fall. This forecast indicates that the housing market is likely to continue to be characterized by high prices and limited affordability in the near future.
The housing market is experiencing a unique set of challenges, with record-high home prices, rising interest rates, and varying regional dynamics influencing market trends. While there are signs of cooling in certain aspects of the market, the overall outlook suggests that home prices are likely to remain elevated in the coming months, posing challenges for prospective buyers and impacting the overall affordability of housing.