U.S. Home Prices Continue to Climb Amidst Rising Mortgage Rates

Despite facing the challenge of soaring mortgage rates, U.S. home prices have surged for the fourth consecutive month in May 2023, according to the S&P CoreLogic Case-Shiller index released on Tuesday. The non-seasonally adjusted data showed a 1.2% increase in national home prices from April to May, with a mere 1% dip from their peak in June 2022 when measured on an annual basis.

Craig Lazzara, Managing Director at S&P DJI, expressed optimism about the housing market’s performance, stating, “The rally in U.S. home prices continued in May 2023… The breadth and strength of May’s report are consistent with an optimistic view of future months.” Lazzara further noted that the decline in home prices, which began after June 2022, appears to have concluded in January 2023.

Analyzing the 10-city composite, which includes major cities like Los Angeles, Miami, and New York, there was a 1% annual decrease, compared to a 1.1% increase observed in April. The 20-city composite, which also tracks housing prices in Dallas and Seattle, witnessed a 1.7% decline in May, mirroring the figures from the previous month.

Interestingly, regional variations were pronounced, with Chicago emerging as the best-performing city for the first time with a remarkable 4.6% annual gain. Cleveland followed closely with a 3.9% gain, while New York posted a respectable 3.5% gain. However, on the West Coast, cities like Seattle experienced substantial declines, plummeting 11.3%, closely trailed by San Francisco with an 11% decline.

“The revenge of the Rust Belt” was evident in this month’s report, as Lazarra pointed out. Cities like Chicago, Cleveland, and New York displayed impressive performance, reflecting a shift from previous trends.

The housing market’s progress is noteworthy, considering the challenges it faced due to the Federal Reserve’s aggressive interest-rate hike campaign, which triggered a slowdown in the market last year. However, with buyers adjusting to higher mortgage rates and navigating limited inventory, the housing market is showing early signs of revival. Presently, the popular 30-year fixed mortgage rates hover around 6.78%, significantly higher than the 5.51% rate observed a year ago and the pre-pandemic average of 3.9%, as reported by Freddie Mac.

Another report from the National Association of Home Builders/Wells Fargo Housing Market Index demonstrated an increase in sentiment, rising one point to 56, the highest reading since June 2022. This rise can be attributed to the growing consumer demand for new homes, partly driven by the scarcity of resale inventory, which has led prospective home buyers to seek new construction options.

While the Case-Shiller index operates with a two-month delay, it remains an important indicator of the overall market trends. As the housing market continues to grapple with rising mortgage rates and regional variations, market experts and homebuyers alike remain watchful for signs of stabilization and further growth in the real estate sector.