Fifth Consecutive Month of Home Price Gains Despite High Mortgage Rates

Amidst the challenges of soaring mortgage rates, the U.S. housing market continues to defy odds, with home prices climbing for the fifth consecutive month in June. The S&P CoreLogic Case-Shiller index, released on Tuesday, revealed a 0.9% national increase in prices from May to June on a non-seasonally adjusted basis. Despite the uphill battle posed by steep mortgage rates, this sustained growth speaks to the resilience of the market.

Annually, the prices showed a mere 0.02% decrease from their peak in June 2022, according to the index. Craig Lazzara, Managing Director at S&P DJI, acknowledged the positive trend, stating that while mortgage rate increases or economic instability could dampen the market’s progress, the current breadth and strength of the report signal a positive outlook for future results.

The Case-Shiller index also highlighted variations in regional performance. The 10-city composite, which includes cities like Los Angeles, Miami, and New York, experienced a 0.5% annual decline, improving from a 1.1% drop in May. Meanwhile, the 20-city composite, which tracks housing prices in cities including Dallas and Seattle, saw a 1.2% decline in June, an improvement from the 1.7% drop observed in the prior month.

The most notable differences emerged among the 20 cities analyzed. Chicago led the pack with a 4.2% annual gain, marking its second consecutive month as the best-performing city. Cleveland followed closely with a 4.1% gain, while New York displayed a 3.4% increase.

In contrast, the West Coast cities faced substantial declines, with San Francisco experiencing a 9.7% drop and Seattle following closely with an 8.8% decline. Lazzara noted that regional disparities remain pronounced, with the Midwest and Northeast showing strength while the West lags behind.

Despite these regional differences, the broader housing market seems to be adapting to the higher mortgage rates. Buyers are adjusting to the increased rates and competing for limited housing inventory, leading to the gradual recovery in home prices. Nicole Bachaud, Zillow Senior Economist, highlighted the influence of inventory scarcity on price trends, stating that high mortgage rates are offset by low housing inventory.

The supply-demand imbalance remains a critical factor in the housing market’s trajectory. The number of homes available for sale at the end of July saw a drastic 9% drop from the previous year, and a staggering 46% plunge from pre-pandemic levels in 2020, according to Realtor.com. Additionally, slow new construction activity and homeowners’ reluctance to part with their low mortgage rates are further tightening the market.

With 30-year fixed mortgage rates reaching 7.23%, as reported by Freddie Mac, the highest level since 2001, the challenges are evident. While the housing market demonstrates its resilience amid these hurdles, industry experts anticipate that the combination of constrained inventory and high mortgage rates will continue to exert pressure on home prices throughout the year.