Home prices rose for the fifth consecutive month in June as demand continued to outpace supply and mortgage rates rose.
The S&P Case-Shiller US National Composite House Price Index rose 0.7% in June Compared to May on a seasonally adjusted basis. It was in line with An increase of 0.7% over the previous month. The index is still only 0.02% below its all-time high exactly a year ago.
The index, which measures home prices in the 20 largest US cities, also rose in June, rising 0.9% month over month, beating Bloomberg’s estimate of a 0.8% increase.
“With the 2023 semi-finals over, the National Composite Index is up 4.7%, just over the average full-calendar-year increase in over 35 years,” said Craig J. Lazzara, managing director at S&P DJI, in a statement. data”. “We recognize that market gains could be cut short by increases in mortgage interest rates or by general economic weakness, but the breadth and strength of this month’s report are consistent with an optimistic view of future results.”
On a yearly basis, the national housing index was unchanged in June, up from a 0.4% decline in the previous month. The 20-city index was down 1.2% on a non-seasonal basis.
Chicago, Cleveland, and New York again posted the highest year-over-year gains among the 20 cities in June, at 4.2%, 4.1%, and 3.4%, respectively.
“The acceleration in home prices is most noticeable in markets that have remained relatively affordable throughout the pandemic and experienced less volatility due to household migration, such as those in the Midwest and New England,” said Dr. Selma Heap, chief economist at CoreLogic. The markets are now catching up to the more expensive ones.”
The index uses the repeat sales method to measure home price growth. This method uses data on properties that have been sold at least twice to more accurately calculate the change in the value of each home and is based on a three-month moving average.
High mortgage rates
Borrowing costs began to rise in June, averaging 6.71%, after remaining below 6.5% over the previous two months. This affected home sales that month. Both sales Existing And new homes It fell in June as buyers were priced in.
But the lack of transactions in June – along with the index’s use of a three-month moving average – wasn’t enough to drive prices lower as interest rates rose.
“This creates a double whammy on housing affordability for average people,” said Patrick Carlyle, senior market analyst in the San Francisco Bay Area at Compass.
Rates reached a 22-year high of 7.23% during the week of August 24.
For example, buyers who bought a June home pay $727 more on a $406,700 median home with a 20% down payment, compared to two years ago when mortgage rates were at 3.02%.
“The issue of affordability has been greatly affected by the increase in interest rates,” Carlyle said.
price forecast
Mortgage rates have increased since then 7.23% last weekIt is the highest point since June 2001 as the Fed remains bent on hitting its 2% inflation target.
This further complicates the direction home prices may take.
On the one hand, higher interest rates only exacerbate the lock-in effect that prevents homeowners from selling their properties, puts more pressure on inventory, and props up prices. On the other hand, many buyers may be priced outright at very high rates, which means that sellers may have to lower prices to attract demand.
Indeed, the five-month period of price increases from February to June caught onlookers by surprise, prompting some analysts to revise their forecasts for home prices. For example, the housing team at Goldman Sachs is now forecasting a 1.8% increase in house prices this year, compared to the 2.2% decline it previously forecast.
But the new projections mean that “house prices will remain virtually unchanged until the end of the year and then return to growth levels in 2024,” Vinay Viswanathan, a fixed-income strategist at Goldman Sachs, wrote in the research note.
CoreLogic’s estimated home values will increase by 4.3% from June 2023 to June 2024.
“While home prices remain strong in 2023, higher mortgage rates are complicating the situation for potential homebuyers, a trend that is likely to limit additional price gains for the rest of the year,” said CoreLogic’s Heap.
“Home prices are still expected to accelerate again and reach mid-single-digit growth by the end of the year.”
Rebecca Chen is a correspondent with Yahoo Finance and previously worked as a Certified Public Accountant for Investment Tax (CPA).
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