Annual home price growth is accelerating, according to the latest S&P Cotality Case-Shiller Indices published Tuesday.
Home prices grew 1.5 percent in June, up from 1.2 percent the previous month. Chicago (+6.9 percent), New York (+4.8 percent) and Cleveland (+4.1 percent) led the way in price gains for the 20 largest metros, while Seattle (-2.0 percent), Las Vegas (-1.9 percent) and Denver (-1.2 percent) logged the largest declines.
Rebecca Kaufman
“Seasonal factors continue to support monthly price growth … Because June typically falls near the peak of the homebuying season, price appreciation often moderates and market activity cools in the months ahead,” said Rebecca Kaufman, Associate Director of Commodities at S&P Dow Jones Indices, in the report. “This geographic divide reflects a years-long trend, with housing markets in the Northeast and Midwest regaining strength while many Western and Sunbelt markets soften.”
While home price growth accelerated, U.S. home values declined for the 13th consecutive month. Although inflation cooled to 3.5 percent in June, it still outpaced home price gains (1.5 percent).
“Homeowners and renters alike breathed a sigh of relief in June as inflation cooled to 3.5 percent, Kaufman said. “While home prices continue to decline in real terms, lower inflation and firmer nominal home price growth in June helped slow that pace of erosion.”
Realtor.com Senior Economist Anthony Smith said the S&P Case-Shiller report shows a rebound from the spring, which was thrown into limbo as the Iranian conflict boosted inflation and stirred uncertainty among homebuyers and sellers.
Anthony Smith
“This marks the fourth straight month of acceleration in headline growth, a reversal from the deceleration seen through much of the spring,” he said in an email. “This month’s release reflects sales closing from April through June, a period when mortgage rates held near 6.5 percent as renewed geopolitical tensions tied to the Iran conflict kept financing costs elevated.”
Smith said the run-up in price growth might end soon, depending on what the Federal Reserve decides during its next Federal Open Market Committee (FOMC) meeting on Sept. 16.
At the latest FOMC meeting on July 29, the Fed decided to hold the federal funds rate (the short-term rate) steady at 3.5 to 3.75 percent. Currently, the CME FedWatch is leaning toward no change in September (65.5 percent). Meanwhile, the probability of a hike is now 34.4 percent — a 7.4 percentage point decrease from just two weeks ago.
The federal funds rate impacts how banks and financial institutions set their rates, including mortgage rates. However, a decline in the federal funds rate does not guarantee that mortgage rates will drop as well.
“Looking ahead, the rate backdrop has grown more challenging since June closed,” Smith said. “The 30-year fixed rate has since climbed to 6.65 percent as of mid-August, pushed higher by bond market turmoil that sent the 30-year Treasury to a nearly 20-year high, and July pending home sales fell another 2.3 percent as rates hit their highest level of the year.”
“If financing costs stay elevated into the fall, June’s pickup in price growth may prove difficult to sustain, particularly in supply-heavy Southern and Western markets still working through a construction backlog,” he added.
