Home prices climbed for the sixth consecutive month to a new high in July as inventory shortages drove up competition.
The S&P CoreLogic Case-Shiller National Home Price Index in July increased 0.6% month over month and 1% over the last 12 months, on a seasonally adjusted basis. July’s movement reached a new high for the nationwide home index, surpassing the record set in June 2022.
"U.S. home prices continued to rally in July 2023," Craig J. Lazzara, managing director at S&P DJI, said in a statement. "The increase in prices that began in January has now erased the earlier [H2 2022] decline, so that July represents a new all-time high for the National Composite."
The 20-city index — measuring existing home prices in the 20 largest US cities — rose 0.9% monthly in July after seasonal adjustment, exceeding Bloomberg’s survey of economists’ expectations of 0.7%.
"This recovery in home prices is broadly based," Lazzara said. "As was the case last month,10 of the 20 cities in our sample have reached all-time high levels. In July, prices rose in all 20 cities after seasonal adjustment (and in 19 of them before adjustment)."
The 20-city index increased by 0.1% over the last 12 months. For the third straight month, Chicago, Cleveland, and New York reported the highest year-over-year gains among the largest US metropolitans in July, at 4.4%,4%, and 3.8%, respectively.
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July’s median home price jumps
July’s US median home price for existing homes rose to 1.9% to $406,700, according to the National Association of Realtors (NAR). The robust housing market suggests that while some buyers pulled back due to high borrowing costs, demand continues to outweigh supply.
(Median prices are often used as a cost measurement as they are not influenced by outliers, such as very expensive or very cheap units, unlike average home prices.)
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"This month’s index data tracks May, June, and July, a period when mortgage rates neared 7% in mid-July, creating the second knock of a one-two blow to housing affordability," Danielle Hale, Realtor.com’s chief economist, said. "Existing home sales, limited by low inventory as high costs cause many existing homeowners to stay put, have borne the brunt of the impact and continued to slip in July."
Home prices have been lifted by the diminishing housing supply on the market, caused by a combination of already low inventory and sellers not listing homes in order to stay with their low mortgage rates. July’s inventory of unsold listings declined 14.6% to 1,110,000 units from 1,300,000 units last July.
"If [homeowners] have mortgages that are 2,3, or 4%, they are less inclined to sell their house or their apartment," Danny Sassoon, senior loan officer and assistant vice president of Citizen Bank, said.
Higher mortgage rates have also impacted demand. In July, the average four-week rate on a 30-year loan was 6.84%. Buyers’ purchasing power has been slowly stripped away as result of both high home prices and mortgage rates.
"Higher mortgage rates have radically altered homebuyer purchasing power and have been a key factor in existing home sales dropping from a more than 6.5 million unit pace in early 2022 to the roughly 4 million unit pace in recent months," Hale said.
2024 forecast
One property research firm projected that prices will continue to rise in 2024, but at a much more moderate pace given elevated mortgage rates. US home prices could see a gain of 3.5% year over year by July 2024, according to CoreLogic.
"The projection of prolonged higher mortgage rates has dampened price forecasts over the next year, particularly in less-affordable markets," Selma Hepp, chief economist for CoreLogic, said. "But as there is still an extreme inventory shortage in the Western US, home prices in some of those markets should see relatively more upward pressure."
For the financing buyers, things might get even tougher as the Federal Reserve suggested last week that it will keep rates "higher for longer." One housing expert later predicted where rates could go.
"In the short run, it's possible that mortgage rates may go up to 8%," Lawrence Yun, the chief economist of the National Association of Realtors, said on Thursday after the group released its existing home sales data for August.
"Mortgage rate changes will have a big impact over the short run, while job gains will have a steady, positive impact over the long run," Yun added.
Rebecca Chen is a reporter for Yahoo Finance and previously worked as an investment tax certified public accountant (CPA).