Bankrate.com writes, "Amid an environment of tight inventory and stubbornly high mortgage rates, housing prices in the U.S. continue to rise ever higher. S&P CoreLogic’s latest Case-Shiller U.S. National Home Price NSA Index, released July 30, 2024, reports that annual home-price growth increased in May 2024 by 5.9 percent. That marks three consecutive months of hitting a new all-time high.

Case-Shiller Index still rising

In addition to the 5.9 percent overall increase, May numbers increased annually for both of Case-Shiller’s composite indices as well, with the 10-city index up 7.7 percent and the 20-city index up 6.8 percent.

“Our home price index has appreciated 4.1 percent year-to-date, the fastest start in two years,” said Brian D. Luke, head of commodities, real & digital assets at S&P Dow Jones Indices, in a statement. “Covering the six-month period dating to when mortgage rates peaked, our national index has risen the past four months, erasing the stall experienced late last year.”

Regional fluctuation continues

May brings a new leader to the top of the annual-growth pack: New York City has displaced San Diego, which held the top position for the past several months. “The Big Apple returned to the top of the leader boards, toppling San Diego from its six-month perch,” Luke said.

However, all 20 markets measured have recorded gains for the past six months. “The last time we saw that long a streak was when all markets rose for three years consecutively during the COVID housing boom. The waiting game for the possibility of favorable changes in lending rates continues to be costly for potential buyers as home prices march forward.”

The five cities with biggest increases were:

  • New York (9.4 percent)
  • San Diego (9.1 percent)
  • Las Vegas (8.6 percent)
  • Los Angeles (8.4 percent)
  • Miami (7.6 percent)

The city that saw the slowest rates of growth was once again Portland, at 1.0 percent.

The Fed and the housing market

The Federal Reserve’s aggressive moves to combat inflation — with 10 consecutive rate hikes over 2022 and 2023 — 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,” 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 hope may be on the horizon, with talk of at least one Fed rate cut by the end of the year, rates remain elevated: As of July 24, 2024, Bankrate’s weekly lender survey puts the average 30-year mortgage rate sat at 6.90 percent.

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.

Robert Frick, corporate economist with Navy Federal Credit Union, agrees that the news is disheartening for hopeful buyers. “There’s no relief for homebuyers hoping for flattening or falling prices,” he said in a statement. “The Index is re-accelerating after slowing due to higher mortgage rates late last year, and is showing a strong 4.1 percent price increase so far this year. This gives a preview of what’s likely to happen if mortgage rates fall even more later this year. Expect home prices to rise as lower mortgage rates encourage more buyers to enter the market, bidding up prices for the low home supplies available.”

However, 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 22 days in June, up from just 18 days in June 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.”"


Source: Bankrate.com

Written by: Ruben Caginalp

Published: July 30, 2024



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