Economists predict that home prices will once again see gains in the month of August. However, these increases could potentially be tempered or even reversed due to higher mortgage rates in the coming months.
S&P CoreLogic Case-Shiller Home Price Indices
The S&P CoreLogic Case-Shiller Home Price Indices for August will be released at 9 a.m. on Tuesday. According to FactSet, consensus estimates suggest that home prices in 20 major cities across the nation have increased by a seasonally-adjusted 0.6% compared to the previous month. Additionally, these prices have risen by 1.6% when compared to August 2022.
Despite the positive outlook for home prices, there are potential challenges on the horizon. Mortgage rates remain near 8%, which could potentially impact future gains. Craig J. Lazzara, Managing Director at S&P Dow Jones Indices, stated last month that July’s reading was “consistent with an optimistic view of future results.” However, he also warned that these gains could be hindered by increases in mortgage rates or general economic weakness.
Looking at the year-over-year basis, it is expected that the 20-city index will show the largest gain since January. However, this anticipated increase is more likely due to a slump in home prices during the second half of last year rather than current strength in the market. In June 2022, prices indicated by the 20-city index reached their peak and subsequently declined as mortgage rates rose. As a result, it creates easier comparisons for the second half of 2023.
For a more current indication of home price trends, it may be more useful to consider Case-Shiller’s month-over-month gains. Since the index lags behind present circumstances, the full impact of the recent rise in mortgage rates will not be fully reflected in this month’s data release. Anticipated at 0.6%, the expected monthly increase in the 20-city index would be higher than average, but it would also be the slowest seasonally-adjusted gain since March.
Mortgage Rates and Home Prices Set to Cool in Winter Months
According to CoreLogic Chief Economist Selma Hepp, mortgage rates have the potential to contribute to the usual slump in home prices during the cool season. Despite a significant increase in housing prices this year, with a 5% climb from the low earlier in the year, the combination of higher mortgage rates and seasonal trends is expected to slow down monthly gains and may even result in some declines during the winter months.
The future of home prices depends on how buyer demand holds up against supply in an unusual housing market. As mortgage rates rise, both buyers and sellers have stepped back, leading some buyers still in the market to turn towards newly built homes. This trend is driven by homeowners who are reluctant to give up their low mortgage rates.
Lawrence Yun, the National Association of Realtors’ chief economist, pointed out that while inventory remains tight and hinders sales, it also keeps home prices elevated. In September, the most recent month for which data is available, home prices increased by 2.8% compared to the previous year, while sales hit their lowest level in almost 13 years. The trade group forecasts that price gains will decelerate throughout the end of this year and next, with a projected 0.1% drop in the second quarter.
In conclusion, as mortgage rates continue to rise and seasonal patterns take effect, the housing market is expected to experience a cooling effect on home prices. However, the tight inventory is likely to maintain elevated prices, resulting in a delicate balance between supply and demand.