The S&P CoreLogic Case-Shiller U.S. National Home Price Index recently reported that home prices reached the highest level ever, despite the fact that mortgage interest rates were on the rise. The three-month running average ending in June showed prices nationally were 5.4% higher than in June 2023. This increase marked a record high for the index, although the annual gain was slightly lower than the previous month. The 10-city composite rose by 7.4% annually, a decrease from the previous month’s 7.8%, while the 20-city composite increased by 6.5%, down from 6.9% in May.
New York experienced the highest annual gain among the 20 cities included in the index, with prices rising by 9% in June. San Diego and Las Vegas followed closely behind, with annual increases of 8.7% and 8.5%, respectively. On the other hand, Portland, Oregon, only saw a 0.8% annual rise in home prices in June, marking the smallest gain among the top cities.
The issue of housing affordability has been a central topic in recent election cycles. To address this concern, the latest report segmented home values by price tier, analyzing the performance of different market segments over the past five years. The data revealed that in 75% of the markets covered, low-price tiers of homes have outpaced the overall market. For instance, in Atlanta, the lower tier of the market has risen 18% faster than middle- and higher-tiered homes. Similarly, New York’s low tier has seen significant outperformance, rising nearly 20% above the region’s overall market. These trends highlight the challenges associated with housing affordability in major metropolitan areas.
Despite the sharp increase in mortgage rates from April through June, home prices continued to rise. Typically, when mortgage rates increase, home prices stabilize or decline. However, in this case, even as rates rose, prices in the housing market remained on an upward trajectory. The 30-year fixed mortgage rate started April just below 7% and spiked to 7.5% by the end of the month. Although rates have since fallen, there is evidence that the decline has not been sufficient to stimulate increased buyer activity. Some potential buyers are waiting for home prices, in addition to interest rates, to come down before entering the market.
While home prices are expected to ease slightly in the upcoming months due to seasonal factors and increased inventory, significant price drops are unlikely. The overall trend suggests that prices will remain higher than they were in the previous fall. This forecast indicates that the housing market, despite facing challenges such as rising mortgage rates and affordability concerns, continues to demonstrate resilience and stability in the face of economic fluctuations.