Despite the increase in mortgage interest rates, home prices have reached an all-time high according to the S&P CoreLogic Case-Shiller U.S. National Home Price Index. The index revealed that on a three-month running average ending in June, national prices were up by 5.4% compared to June 2023. This marks a record high for the index, although the annual gain was slightly lower than May’s 5.9% reading.
New York experienced the highest annual gain among the 20 cities covered in the index, with prices rising by 9% in June. San Diego and Las Vegas also saw significant annual increases of 8.7% and 8.5% respectively. On the other hand, Portland, Oregon only saw a minimal 0.8% rise in prices, making it the city with the smallest gain among the top cities. This variation in price trends among different cities highlights the diverse landscape of the real estate market.
Interestingly, despite the sharp rise in mortgage rates from April to June, home prices continued to increase. Typically, when mortgage rates go up, it leads to a cooling off in housing prices, but in this case, prices still rose. The average rate on the 30-year fixed mortgage started just below 7% in April and increased to 7.5% by the end of the month. Although rates have since fallen back to around 6.5%, there is evidence that the decline in rates has not been sufficient to attract buyers back into the market.
With housing affordability being a significant topic in the current election cycle, the latest report also delved into home values based on different price tiers in each city. The analysis found that over the past five years, lower-priced properties have been rising faster than the overall market in 75% of the cities covered. For example, in Atlanta, the lower tier homes have outperformed middle- and higher-tier homes by 18%. Similarly, New York’s low tier properties have seen a 20% rise compared to the overall market. On the other hand, San Diego has experienced the most substantial appreciation in high-tier homes over the same period.
As we head into the fall, it is expected that home prices will ease slightly due to seasonal factors and an increase in inventory. However, prices are unlikely to experience a significant drop and are anticipated to remain higher than they were last fall. Some potential buyers are waiting for a decrease in home prices before making a purchase, indicating that there may be a slight cooling off in the market in the coming months.
Overall, the current real estate market reflects a unique scenario where rising mortgage rates have not hindered the growth in home prices. The fluctuation in prices among different cities, the impact of mortgage rates, and the trends in price tiers all contribute to the dynamic nature of the housing market. While there may be some changes in the near future, the overall trajectory of home prices remains positive.
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