High home prices in June foretold a tough summer for buyers
The latest Case-Shiller data found that prices continued to creep up through June, returning to peak levels. But things may shift this fall.
- The near-peak prices, combined with 22-year-high mortgage interest rates, have made homebuying even more challenging.
- Demand is expected to ease because of these conditions, but economists don’t expect a major price correction this fall.
- The FHFA home price index also reported continued appreciation through June, though both indices noted declines in the West.
Market conditions this past spring set the stage for a difficult summer for homebuyers as prices returned to near-peak levels.
The latest S&P CoreLogic Case-Shiller Index, which covers market data through June, found that home prices were just shy of their record-high levels seen a year prior, shortly before mortgage interest rate hikes accelerated. The overall index in June was flat compared to a year ago, while the 10-city composite was down 0.5% and the 20-city composite was down 1.2%.
The overall index showed modest month-to-month increases in June. It was the fifth consecutive month of gains, an indication that prices continued to recover throughout the spring.
Meanwhile, the Federal Housing Finance Agency data released today found that overall home appreciation rose 3% in June compared to a year ago and was up 0.3% from May to June. The FHFA uses loan purchasing data from Fannie Mae and Freddie Mac across all 50 states to produce its housing index.
While continued gains are good news for homeowners, "Today's market offers buyers the frustrating combination of low inventory and high home prices," said Hannah Jones, Realtor.com's data analyst.
Lisa Sturtevant, chief economist at Bright MLS, noted that the Case-Shiller data is based on June market activity, when buyers were still willing and eager to purchase a home, but the picture looks a bit different today.
"Mortgage rates are up by more than 60 basis points since the beginning of June and existing home sales this summer are down to their lowest levels since 2010," Sturtevant said.
The rise in mortgage rates, which reached a 22-year high this summer, may be the final straw for many potential homebuyers, causing them to "cry uncle" and abandon the market, she added. If that happens, demand should finally start to ease.
"Given the robust economy and low supply, don't expect a major price correction, but it's likely we'll see modest year-over-year price declines in many markets this fall," Sturtevant said.
While prices aren't likely to plummet or surge in the next few months, the overall market should still grow at a steady rate compared to December 2022, said Selma Hepp, CoreLogic's chief economist. The current 2023 appreciation pace is around 5%.
"Home price acceleration is most notable in markets that remained relatively affordable throughout the pandemic and saw less volatility from household migration, such as those in the Midwest and New England. Home prices in these markets are now catching up with more expensive ones," Hepp said.
Case-Shiller's 20-city composite showed Chicago, Cleveland and New York posting the biggest price increases year-over-year, in the 3-4% range. The West Coast metros of San Francisco (down 9.7% year-over-year) and Seattle (down 8.8%) were at the bottom.
According to the FHFA report, home prices rose annually in 74 of the top 100 metro areas, with stark regional differences: Much of the West and Mountain West posted year-over-year price declines, while most of the Midwest, South and East Coast showed price appreciation.