The S&P CoreLogic Case-Shiller U.S. National Home Price Index recently reported that home prices have reached the highest level ever, even as mortgage interest rates are on the rise. According to data released in June, prices nationally were 5.4% higher than they were in June 2023. While this marks a record high for the index, the annual gain was actually smaller than the previous month’s reading of 5.9%. The 10-city composite rose 7.4% annually, down from 7.8% in the previous month, and the 20-city composite was 6.5% higher year over year, a decrease from the 6.9% increase in May.
New York saw the highest annual gain among the 20 cities, with prices climbing 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, had the smallest annual rise in June, with just 0.8%.
In light of housing affordability being a major issue, this month’s report also analyzed home values by price tier. Each city’s market was divided into three tiers, revealing interesting trends. Over the past five years, 75% of the markets covered show low-price tiers rising faster than the overall market. For example, in the Atlanta market, the lower tier has risen 18% faster than the middle- and higher-tiered homes. New York’s low tier experienced the largest five-year outperformance, rising almost 20% above the overall market. Conversely, San Diego has seen the largest appreciation in higher-tier homes over the past five years.
The increase in home prices comes at a time when mortgage rates have been steadily rising. From April through June, mortgage rates saw a sharp increase, with the average rate on the 30-year fixed starting at just below 7% and climbing to 7.5% by the end of the month. Rates remained above 7% before falling back below that level in July, with the current rate hovering around 6.5%. Despite the typical trend of cooling prices in response to rising rates, the increase in home prices remains steady.
While home prices are expected to ease slightly going into the fall due to seasonal factors and increased inventory on the market, they are unlikely to drop significantly. Home prices are expected to remain higher than they were last fall, indicating a continued trend of growth in the housing market. However, some potential buyers are holding out on entering the market, waiting for both home prices and interest rates to decrease before making a purchase decision.
The housing market continues to thrive despite the challenges posed by increasing mortgage rates. The unique trends observed in different regions and price tiers offer valuable insights into the dynamics of the housing market. As the market continues to evolve, it will be interesting to see how factors such as interest rates, inventory levels, and buyer sentiments shape the future of the housing industry.
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