Despite higher mortgage rates, home prices don’t seem to cool down much.
It seems the increased cost of borrowing money for homes isn’t significantly impacting the housing market. It also suggests that other factors may be playing a more dominant role in driving home prices.
In essence, despite the rise in mortgage rates, the housing market continues to remain robust.
Home prices surge 3.9% nationally
In September, home prices across the country rose by 3.9% compared to the same month last year, marking an increase from the 2.5% gain in August.
The S&P CoreLogic Case-Shiller Index reports this upward trend. Notably, this happened concurrently with the average rate on the 30-year fixed mortgage nearing 8%.
Among the 20 cities featured in the report, Detroit experienced the largest yearly growth at 6.7%, trailed by San Diego at 6.5% and New York at 6.3%.
Conversely, Las Vegas, Phoenix, and Portland, Oregon, reported reduced prices compared to the previous year. Interestingly, these cities were among the notable gainers in the initial years of the Covid-19 pandemic.
Resilient housing market despite challenges of higher mortgage rates and limited inventory
Craig Lazzara, the managing director at S&P DJI, noted the remarkable resilience of the housing market’s strength. He is emphasizing its continued impressiveness.
Despite the decrease in the number of homes sold due to higher mortgage rates this year, the scarcity of available homes for sale has consistently supported prices, contributing to the market’s overall robustness.
Craig Lazzara also added that unless higher rates or unforeseen events trigger economic weakness, the widespread and robust nature of this month’s report aligns with an optimistic outlook for future results.
In recent weeks, rates have softened, resulting in a modest uptick in mortgage demand.
So far this year, home prices nationwide have surged by 6.1%, surpassing the median increase for an entire calendar year in the more than 35 years of data recorded by this index.
While home prices continue to rise, there’s a contrasting trend in rents.
Jessica Lautz, NAR’s deputy chief economist, shared her insight with Yahoo Finance. She emphasized that in the challenging housing market, buyers are facing hurdles due to higher interest rates and continually rising home prices.
For today’s homebuyers, the landscape has shifted significantly, with borrowing costs nearly tripling since the summer of 2021.
Back then, the average rate for a 30-year fixed mortgage was a mere 2.77%, as per Freddie Mac data. Presently, the rate has surged well beyond 7%.
Median rent decreases due to supply dynamics
In November, the national median rent decreased by 0.9% compared to October, as reported by Apartment List.
This marks a 3.5% decline from its peak in August 2022. Despite this drop, rent remains nearly $250 more per month than three years ago.
Rent declines are influenced by seasonal patterns and supply dynamics. This year, there’s a record influx of new apartments, a result of a significant construction boom in the sector. These factors contribute to the current drop in rents.
As we approach the holidays, filling vacancies becomes more challenging. They provide renters with greater negotiating power in lease discussions, as highlighted in the report.
Rent growth is expected to be tempered by increased supply next year. Currently, the nationwide apartment vacancy rate stands at 6.4%. It is slightly above the pre-pandemic average, and there’s a possibility it could further increase in the coming year.
Peter Boockvar, Chief Investment Officer at Bleakley Financial Group and a CNBC contributor observes that while rental growth is expected to pick up seasonally in the spring, the evident deceleration is a trend that will eventually reflect in the Consumer Price Index (CPI) data.
Predicting a continued cooling of inflation in 2024, there’s an anticipation of a reacceleration in the years that follow.
Despite this, the immediate concern for markets focuses on the present. The current slowdown is particularly welcomed by renters, especially in a scenario where mortgage rates exceed 7% and buying a home is more challenging.