Markets in the Southeast and West – including Miami; Las Vegas; Charlotte, North Carolina; Atlanta and Phoenix – show renewed buoyancy in recent home price gains
Persistent mortgage rate increases have put the U.S. housing market in a quagmire, driving home sales activity to the lowest level in 15 years. As of September, year-to-date home sales are trending 22% below last year’s levels and 23% below 2019, according to CoreLogic MLS PIN data. Nevertheless, sales volume may further deteriorate in the coming months as mortgage rates continue to rise. Currently, mortgage rates moving from 3% to 8% wiped out about 36% of homebuyers’ purchasing power. Nevertheless, while existing home sales have slumped, prices have remained remarkably steady.
In August, the CoreLogic S&P Case-Shiller Index increased by 2.6% year over year, the second month of annual increases following two months of annual declines (Figure 1). With the rebound in prices this year, home prices are now up 0.4% compared with the June 2022 peak, but up by 6.4% from the January 2023 bottom.
The non-seasonally adjusted month-over-month index posted its seventh straight month of strong gains, up by 0.4% in August, a smaller increase than the one recorded in previous months but slightly higher than the seasonal average of 0.3% recorded between 2015 and 2019. Calculating the monthly gains, home prices are now up by 6.4% from January of this year. But while monthly gains have been strong, the recent surge in mortgage rates suggests plateauing appreciation going forward (Figure 2).
Strong price gains in the spring of 2023 suggest that overall home price appreciation for the rest of this year will remain above many initial expectations. CoreLogic’s latest Home Price Index predicts that U.S. home prices will average a 3.4% increase in August 2023 compared with the previous year. Still, the recent mortgage rate surge to 8% and higher will have some impact on home prices this winter, in addition to the seasonal slowing expected at that time of year.
The 10-city and 20-city composite indexes posted a second month of annual increases in August, up by 3% and 2.2%, respectively. Both indexes are also up by about 7% cumulatively since the beginning of 2023. The 10-city index includes currently better-performing metro areas, such as New York and Chicago, which have seen relatively stronger housing markets since mid-2022, as the return to cities and offices has gotten underway.
Compared with the 2006 peak, the 10-city composite index is now 47% higher, while the 20-city composite is up by 55%. Adjusted for inflation, which is showing signs of easing, the 10-city index is now 1% above its 2006 level, while the 20-city index showed a 6% increase compared with its 2006 high point. Nationally, home prices are 16% higher adjusted for inflation compared with 2006.
August continued to show variations in price changes across metros (Figure 3). Chicago and New York again led the 20 cities, with annual gains of 5%; followed by Detroit, up by 4.8% and San Diego, up by 4.1%. In August, 19 metros saw annual home price gains reaccelerate from the previous month, while Cleveland, which ranked fifth for annual gains, saw price growth slow from the previous month. The strongest price acceleration was recorded in West Coast markets, particularly Seattle, San Francisco, Los Angeles, San Diego and Phoenix.
While home prices were up by 0.4% nationally from July to August, many metros also saw month-over-month home price boosts in August, albeit with some variation. Figure 4 summarizes the current year’s monthly gains in August compared with averages recorded between 2015 and 2019.
Miami and New York posted the nation’s largest monthly gains, 1.2% and 1.1% respectively, while San Francisco recorded the largest monthly decline, down by 0.5%. And while markets in the Southeast saw outsized increases this August, Dallas; Portland, Oregon; Minneapolis; Cleveland and San Francisco lagged behind their historical seasonal increases (Figure 4).
Across price tiers, the high tier continued to show relative weakness but still squeezed out a 0.8% increase year over year. This relative weakness may reflect the greater mobility of higher-income households during the pandemic, a trend that has since waned. In addition, the surge in demand for luxury and second homes seen in 2021 and 2022 has also contracted relatively more since the increase in mortgage rates and the stall in home sales activity. The middle tier gained 1.4% in August, while the low tier increased by 2.1%.
The month-over-month comparison of appreciation by price tier and location also reveals relative changes in demand across the country. In August, Miami and Las Vegas led the gains across price tiers, with Las Vegas heading up the gains in high tier. Overall, the high tier saw a mix of gains and losses, with the largest decline in San Francisco (Figure 5).
Mortgage rates will continue to drive both the overall housing market and home prices changes. While low inventory continues to prop up home prices, high mortgage rates may be more crucial in the winter months to determine the market’s direction.
And while annual gains are likely to remain positive, some monthly declines are possible, particularly near the end of 2023. Overall, however, demographics, equity -rich baby boomers and strong job markets continue to drive housing demand and put pressure on home prices in many markets. This is especially true for markets with strong in-migration, robust job growth and relative affordability.