A suburban home against a backdrop of a financial graph.
Illustration by Lanette Behiry/Real Estate News

Case-Shiller: Home prices peaked this summer 

Prices in July topped last year’s high, but slowing demand due to elevated mortgage rates is expected to bring price declines and soften new home sales.

September 26, 2023
3 minutes

Key points:

  • The S&P CoreLogic Case-Shiller Index rose 0.6% between June and July.
  • With 30-year mortgage rates holding steady at more than 7% since August, demand is expected to weaken, leading to modest price declines.
  • The Census Bureau reported that new home sales fell 8.7% in August after rising earlier in the summer, with interest rates likely contributing to the reversal.

Home prices hit a record high in July, based on the latest Case-Shiller data, but declines may be coming as elevated interest rates continue to dampen demand.

The S&P CoreLogic National Home Price Index rose 0.6% between June and July and 1% year-over-year. July represents the all-time high for the index, said Craig Lazzara, managing director at S&P DJI. He also noted that the "recovery in home prices is broadly based," with 10 of the 20 cities in the index reaching peak levels in July.

Meanwhile, the Federal Housing Finance Agency data released today found that overall home appreciation rose 4.6% in July compared to a year ago and was up 0.8% from June to July. The FHFA uses loan purchasing data from Fannie Mae and Freddie Mac across all 50 states to produce its housing index.

Prices expected to dip (slightly) this fall

What goes up must come down, and a steady decline in home prices is a likely response to 7% mortgage rates, which have persisted since early August, mirroring last year's trend.

"Although the market fundamentals remain strong, a modest price correction is probably in the offing as demand is going to slow further this fall," said Lisa Sturtevant, chief economist at Bright MLS. She noted that the lack of supply will keep the prices from dropping significantly, however.

With rent prices continuing to decline as more apartments come onto the market, renters may be less motivated to take the leap to homeownership, further tempering purchase demand.

"Taken together, trends in the for-sale and for-rent markets suggest that modest relief from today's record-high unaffordability is on the way, but it will take time to unfold," said Danielle Hale, chief economist at Realtor.com.

Midwest cities post largest gains

While the Case-Shiller index reported rising home prices in cities across the country, there were some significant regional differences. The Midwest saw the biggest price increase in the past year, rising 3.2%, followed by the Northeast (up 2.3%). The West (down 3.8%) and the Southwest (down 3.6%) remain the weakest regions.

Among the 20 cities in the composite index, Chicago (up 4.4% year-over-year in July) and Cleveland (up 4%) posted the biggest price jumps, while Las Vegas (down 7.2%) and Phoenix (down 6.6%) posted the biggest declines.

New home sales decline

Sales of new homes, which were strong throughout the summer due to limited inventory of existing homes, have started to soften as higher mortgage rates take a toll. 

"While some builders were able to offset that effect via mortgage rate buydowns, rates moved higher this month, suggesting the pace of new home sales will weaken further for September," said Robert Dietz, chief economist at the National Association of Home Builders.

The U.S. Census Bureau reported sales in August were at a seasonally adjusted annual rate of 675,000, down 8.7% compared to July. 

Despite the big monthly drop, new home sales were up 5.8% compared to a year ago.

The median sale price for new homes in August was $430,300, down around 2% compared to a year ago. Dietz said builder incentives and a shift toward building slightly smaller homes have contributed to the dip in prices.

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