U.S. home prices continued to gain ground in August, but the pace of growth slowed considerably as rising mortgage rates drove more potential buyers out of the market.
According to the S&P CoreLogic Case-Shiller US National Home Price Index, home prices rose 13% in August from a year earlier, faster than the 15.6% seen in July and 18.1% in June. The decline between July and August was the biggest slowdown in the index’s history dating back to 1987, surpassing the record set a month earlier.
July also marked the first month-on-month decline for the national index since February 2012, and continued in August, with seasonally adjusted prices falling 0.9% month-on-month.
“These data clearly show that the rate of home price growth peaked in the spring of 2022 and has been declining since then,” said Craig J. Lazzara, managing director of S&P Dow Jones Indices.
All 20 cities tracked by the index reported smaller price increases in August than a year earlier. But despite the ongoing slowdown, home prices in August remained well above year-ago levels in all 20 cities.
Miami had the biggest gain, with home prices up 28.6% in August from a year earlier. It was followed by Tampa with a 28% increase and Charlotte with a 21.3% increase. However, the rate of price increase is also decreasing in those cities.
Price growth was strongest in the Southeast, up 24.5% from a year ago, and up 23.6% in the South.
However, annual price growth is expected to continue to decline, and some areas may experience year-on-year declines.
“As the Federal Reserve raises interest rates, mortgage financing becomes more expensive and housing becomes less expensive,” Lazzara said. “Home prices may continue to slow.”
Over the month, all 20 cities saw price declines in August from July, with the largest declines occurring in the West. Home prices in San Francisco fell 4.3% in August from the previous month, followed by Seattle (3.9%) and San Diego (2.8%).
A separate report from the Federal Housing Finance Agency on Tuesday showed a similar trajectory in home prices in August.
The FHFA Home Price index, which measures changes in single-family home prices, reported that home prices rose 11.9% year-over-year in August and fell 0.7% from the previous month. The agency said that in July, the index showed the first monthly decline in house prices since May 2020. August’s decline is the first time since March 2011 that the index has declined for two consecutive months.
“High mortgage rates continued to pressure demand, particularly dampening home price growth.” Will Doerner, Supervising Economist of FHFA’s Division of Research and Statistics, said.
is the average interest rate for a 30-year fixed-rate mortgage currently 6.94%, is twice as much as at the beginning of the year. But affordability has worsened since August, when prices fell a full point.
George Ratiu, chief economist and manager of economic research at Realtor.com, said the decline in August home price appreciation reflects a late-summer slowdown in homebuyer activity.
“For homebuyers, the impact of higher rates has been compounded by four-decade high inflation, resulting in less money in their pockets and shrinking budgets,” Ratiu said. “The sharp decline in demand has been reflected in lower sales and lower home prices.”
Since August, other indicators have also shown that the housing market has cooled. With mortgage interest rising to about 7% – at a level not seen in 20 years – home sales are down and builders retreated about the construction of new houses.
“With monthly mortgage payments 75% higher than last year, many first-time buyers have been left out of the housing market, unable to find homes that have lost $100,000 in their budgets this year,” Ratiu said.
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