Amid an environment of tight inventory and stubbornly high mortgage rates, housing prices in the U.S. are on the rise — again. S&P CoreLogic’s latest Case-Shiller U.S. National Home Price NSA Index, released May 28, 2024, reports that annual home-price growth increased in March 2024 by 6.5 percent. That’s relatively flat from the previous month, representing the sixth all-time high in the past 12 months.
Case-Shiller Index still rising
In addition to the 6.5 percent overall increase, March numbers increased for both of Case-Shiller’s composite indices as well, with the 10-city index up 8.2 percent and the 20-city index up 7.4 percent.
“This month’s report boasts another all-time high,” said Brian D. Luke, head of commodities, real & digital assets at S&P Dow Jones Indices, in a statement. “We’ve witnessed records repeatedly break in both stock and housing markets over the past year. Our national index has reached new highs in six of the last 12 months.”
Regional fluctuation continues
While all cities measured reported increases in annual prices, some saw much higher jumps than others. San Diego once again led the pack, achieving double-digit growth with an 11.1 percent jump. It was followed by:
- New York (9.2 percent)
- Cleveland (8.8 percent)
- Los Angeles (8.8 percent)
- Boston (8.7 percent)
- Chicago (8.7 percent)
Areas that saw the slowest rates of growth were Denver and Portland, at 2.1 percent and 2.2 percent, respectively.
The Northeast is outpacing other regions in price growth: “Regionally, the Northeast remains the top performer with an 8.3 percent annual gain, showcasing robust growth compared to other metro markets,” Luke said. “Conversely, cities like Tampa, Phoenix and Dallas, which saw top-tier performance in 2020 and 2021, are now growing at a slower pace. COVID was a boon for Sun Belt markets, but the bigger gains the last couple of years have been the northern metro cities.”
The Fed and the housing market
The Federal Reserve’s aggressive moves to combat inflation — with 10 consecutive rate hikes over 2022 and 2023 — have put upward pressure on mortgage rates, even as inflation declined. While the Fed doesn’t directly set mortgage rates, the mortgage market’s interpretations of the central bank’s moves influence how much you pay for your home loan.
The long period of low mortgage rates following the Great Recession came to an end in 2022. In June 2022, rates topped 6 percent for the first time since 2008. The upward trend continued through October, when rates hit a 23-year high of 8 percent. Steve Reich, VP of operations at CrossCountry Mortgage in Pennsylvania, highlights the impacts that these trends have on the housing market. “As the Fed worked to get inflation under control, higher interest rates tempered what many homebuyers could afford and, in turn, softened home sales,” he said in a statement.
Higher rates also exacerbate the housing shortage, stopping many homeowners from selling when they otherwise might — and thus keeping those homes off the market and out of the supply of available housing.
The remarkable rise in mortgage rates is acting as a kind of golden handcuffs.
— Mark Hamrick, Bankrate Senior Economic Analyst
“The remarkable rise in mortgage rates is acting as a kind of golden handcuffs,” says Mark Hamrick, Bankrate’s senior economic analyst. Higher rates are “limiting the desire and some of the ability of people to move out of the homes they currently own. That further pressures housing inventory, adding insult to supply injury.”
While rates are thankfully no longer hovering around 8 percent, they remain elevated: As of May 22, 2024, the average 30-year mortgage rate sat at 7.09 percent.
“Demand is so high, and inventory of homes on the market is so low, that the Case-Shiller Index reached another all-time high,” says Robert Frick, corporate economist with Navy Federal Credit Union. “Factor in mortgage rates around 7 percent and home affordability couldn’t be much worse for most Americans. The trend is clear — older, wealthier buyers increasingly have the best shot at homeownership. Lower interest rates will bring some relief, but increasing the U.S. house stock is the only long-term fix.”
What the Case-Shiller Index means for homebuyers and sellers
The current market has proved challenging on both sides of the real estate transaction — and unless we see a significant drop in either home prices or mortgage rates, both buyers and sellers will need to go with the flow. “For prospective sellers, the new status quo dictates they remain flexible on price, given the extraordinary challenges posed by the sharp increase in mortgage rates,” Hamrick says.
“Those who are very motivated to purchase a home should be prepared for the sticker shock associated with the increased expense of financing the purchase,” he continues. “Part of the flexibility that may be required includes seeking a possible downgrade of footprint or quality of home, along with the neighborhood, in order to achieve an affordable purchase.
Reich emphasizes that buying a home in today’s market, while difficult, is still possible. “The average time active listings stay on the market is getting longer, resulting in a slightly less competitive market,” he says. National Association of Realtors data proves that out: The median days-on-market length was 26 days in April, up from 22 days in April of last year, which gives buyers more time to make an informed, well-considered decision. “And that’s good news for homebuyers who are still in the game.”
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