Record-Breaking Home Prices Despite Rising Mortgage Rates

The S&P CoreLogic Case-Shiller U.S. National Home Price Index reached an all-time high in June 2024, even as mortgage rates were increasing.

• Prices nationally were 5.4% higher in June 2024 compared to June 2023, marking a new record for the index.
• However, the annual gain was slightly lower than May's 5.9% increase.
• The 10-city composite rose 7.4% annually, down from 7.8% in the previous month.
• The 20-city composite saw a 6.5% year-over-year increase, down from 6.9% in May.

Widening Gap Between Home Prices and Inflation

The gap between home price appreciation and consumer price inflation has widened, indicating a potential affordability issue.

• The National Index averaged 2.8% more than the Consumer Price Index, a full percentage point above the 50-year average.
• While home prices have risen over 1,100% since 1974, they have only doubled (111%) after accounting for inflation.

Regional Variations in Home Price Growth

Some cities experienced more significant home price increases than others.

• New York saw the highest annual gain at 9%, followed by San Diego (8.7%) and Las Vegas (8.5%).
• Portland, Oregon, had the smallest gain among the top cities at 0.8%.

Varying Price Tiers and Housing Affordability

The report analyzed home values by price tier, highlighting potential affordability concerns.

• In 75% of large markets, low-price tiers rose faster than the overall market over the past five years.
• In Atlanta, the lower tier rose 18% faster than the middle and higher tiers.
• New York's low tier outperformed the overall region by nearly 20%, with the largest divergence between low and high tiers.
• San Diego saw the largest appreciation in higher-tier homes over the past five years, up 79% compared to 63% for the lower tier.

Impact of Rising Mortgage Rates

The increase in home prices occurred despite a sharp rise in mortgage rates from April through June.

• The average rate on the 30-year fixed mortgage started April below 7% but rose to 7.5% by the end of the month.
• Rates stayed above 7% before falling back under that level in July, currently around 6.5%.
• Typically, when mortgage rates rise, home price growth cools.

Buyer Hesitancy and Market Outlook

The decline in mortgage rates may not be enough to entice buyers back into the market, as some are waiting for home prices to come down.

• While home prices should ease month-to-month going into the fall due to seasonal factors and more inventory, significant drops are unlikely.
• Home prices are expected to remain higher than they were last fall.