Home prices in the United States have seen a consistent upward trend, with June marking the fifth consecutive month of gains. According to the S&P CoreLogic Case-Shiller US National Home Price Index, prices rose by 0.7% from the previous month, remaining near the all-time highs recorded a year ago
Broader Recovery in Home Prices
Craig Lazzara, the managing director at S&P DJI, noted that the recovery in home prices is widespread, indicating a positive trend in the housing market1. The national composite index remained flat year over year, after a 0.4% decline in May. It is now just 0.02% below its all-time peak from a year ago.
However, despite the overall strength of home prices in 2023, stubbornly high mortgage rates have complicated the situation for potential homebuyers, limiting affordability. Selma Hepp, CoreLogic’s chief economist, suggested that this could moderate the price gains for the rest of the year.
Regional Variations in Price Appreciation
Some regions experienced more significant price appreciation than others. The Midwest and New England, which remained relatively affordable throughout the pandemic and saw less volatility from household migration, witnessed notable home price acceleration. As a result, prices in these areas are now catching up with more expensive markets.
Chicago, Cleveland, and New York emerged as the cities with the most significant price appreciation in June, with increases of 4.2%, 4.1%, and 3.4% year over year, respectively. These cities also demonstrated strong appreciation in May. On the other hand, cities in the West, such as San Francisco and Seattle, experienced the largest price drops, with declines of 9.7% and 8.8%, respectively.
The Midwest maintained its position as the nation’s strongest region, with a 2.8% increase in home prices from the previous year. It was followed by the Northeast, which experienced a 1.6% rise. In contrast, the West continued to see annual price declines, with a 5.9% drop from a year ago.
Impact of Low Inventory on Home Prices
One of the factors contributing to the rise in home prices is the persistently low inventory of available homes. Hannah Jones, an economic data analyst at Realtor.com, highlighted the influence of historically low inventory on maintaining the strength of home prices, despite ongoing affordability challenges.
The limited inventory has resulted in higher prices because few homeowners are willing to sell their homes and give up their ultra-low mortgage rates. With the prospect of buying a new home at higher mortgage rates, potential sellers are content to stay put. This scarcity of existing homes for sale has created more competition among homebuyers.
To bridge the inventory gap, builders have increased construction activity. However, they remain cautious due to the continuing challenges of affordability, which are dampening buyer demand.
Rental Market as an Affordable Option
As homebuyers navigate the affordability challenges, the rental market offers a potential solution. According to Realtor.com, at a national level, rents have fallen annually for the past three months due to increased rental inventory, which has relieved some of the price pressure.
Renting a property can provide a more affordable option for individuals who are saving up for a future home purchase. This allows them to avoid the high prices and competition in the current housing market1.
Future Outlook: Reacceleration of Home Prices
Despite the challenges posed by high mortgage rates and limited inventory, Selma Hepp, CoreLogic’s chief economist, remains optimistic about the future of home prices. She expects prices to reaccelerate and reach a mid-single-digit growth rate by the end of the year.
The US housing market continues to demonstrate resilience, with home prices rising for the fifth consecutive month in June. While some regions experience more significant price appreciation, others face declines. The impact of historically low inventory has resulted in higher prices, creating challenges for potential homebuyers. However, the rental market offers an alternative for those looking for more affordable options. Despite the current obstacles, experts remain hopeful for a reacceleration of home prices in the near future.
