The housing market is still in a bit of a lull as buyers wait for lower interest rates and lower prices before they will begin to put capital to work. The Case-Shiller home price index tracks the changes in home prices on a monthly basis. There are three Case-Shiller indexes, the 10-city, the 20-city, and one for the entire nation. August’s Case-Shiller data, which is an average of June, July, and August’s closing prices, was just released and it shows another increase in home prices. The 10-city saw a 6% increase from the year before, the 20-city index rose 0.4% in August from the month of July, and the national index rose 0.3%. The national index has a year over year increase of 4.2% while the 20-city has increased 5.2% in the last 12 months. This was the slowest gain for home prices since September of last year, indicating that home prices may be peaking or are about to peak. Brian D. Luke, of S&P Dow Jones Indices, said “Home-price growth is beginning to show signs of strain, recording the slowest annual gain since mortgage rates peaked in 2023,” August was the fifth straight month with lower year over year increases, even though the 20-city is making new highs.
Below is the percent change from last year of home prices in each of the areas in the 20-city index.
New York is leading the pack with a whopping 8.1% increase since August 2023. Denver saw the smallest gain of just 0.7%. Selma Hepp, Chief Economist at CoreLogic wrote, “Bifurcation in housing demand and price growth remained – with the West and South seeing stronger slowdowns in home prices and the Northeast and Midwest, which continue to see robust home price gains. The tale of two regions reflects significant affordability challenges in the West and South, where home price increases in recent years and high mortgage rates priced out many potential buyers. The Northeast and Midwest continue to benefit from relative affordability and less cumulative increase in prices over the last few years, but also more limited for-sale inventory. Regions in the South, including Florida, have been cooling more rapidly this year, as inventories of homes for sales jumped due to higher non-mortgage costs of homeownership, including insurance, condo reserves and taxes, which have impacted fixed-income households in particular.” The median price for a used home in August was $414,200, for a new home it was $410,900.
Hannah Jones of Realtor.com said in a statement, “This month’s release captures the time period during which rates dropped from roughly 7% to 6.35%, though significant, this drop in rates has not yet resulted in a significant uptick in demand and home sales activity, which meant home price growth continued to mellow.” The Fed’s interest rate cut in September was a huge blessing to many potential homebuyers, however, it hasn’t had the effect that many were anticipating.
Mortgage rates have not come down as much as buyers are hoping for, we are still in a time of incredibly high mortgage rates, this makes financing a home is currently a costly endeavor. Selma Hepp wrote, “Despite much-needed optimism, brought about by a sharp decline in mortgage rates in August, the boost was short-lived and not enough to markedly renew homebuyer interest. As a result, home prices continued to weaken relative to their seasonal trend. and year-over- year gains took a step back. Still, the slight boost in homebuyer demand seen during the weeks of falling mortgage rates illustrate the pent-up demand that is sitting on the sidelines and waiting for lower interest rates.” Selma Hepp highlights here how many buyers have been “sitting on the sidelines” waiting for lower mortgage and interest rates before buying a home. Further interest rate cuts by the Federal Reserve are going to be needed before a lot of buyers are going to begin flooding the market. The Federal Reserve does not set mortgage rates, however the decisions that the Fed makes heavily influence the direction that mortgage rates will head in.
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