Recent data shows that home prices in the 20 largest U.S. cities have hit new historic highs. However, due to a housing shortage, high mortgage rates, and low inventory, the growth rate of home prices is slowing.
According to the S&P CoreLogic Case-Shiller Home Price Index, home prices in the 20 largest cities rose by 0.4% in April compared to the previous month. Although prices continue to rise, this increase is slower than in previous months. As of April this year, home prices in these 20 major cities have risen by 7.2% over the past 12 months. By comparison, last month's annual increase was 7.5%, indicating a slowdown in growth.
Nationally, the index measuring home prices shows a similar trend. In April, the national home price index rose by 0.3%, and over the past year, it increased by 6.3%. All data is seasonally adjusted, indicating that even under different seasonal and market conditions, home prices remain at historic highs.
Among the 20 largest cities, San Diego saw the largest price increase, with home prices rising by 10.3% year-over-year in April. All 20 major markets reported annual price increases. However, Portland experienced the slowest price growth at just 1.7%.
Meanwhile, another report from the Federal Housing Finance Agency (FHFA) showed that home prices rose by 0.2% month-over-month and 6.3% year-over-year in April. The report noted that, compared to last year, the New England and Mid-Atlantic regions saw the largest price increases.
The median prices of existing and new homes were $407,600 and $433,500, respectively. These high prices add to the burden on homebuyers, particularly first-time buyers.
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Despite the slowdown in price growth, prices remain high. Unless there is a significant increase in the number of homes listed for sale, prices may continue to rise. This situation creates tremendous pressure on homebuyers, especially first-time buyers. First-time buyers not only have to deal with high mortgage rates and rising home prices, but they also lack existing property to sell and raise funds, making their situation even more difficult.
In a statement, Brian D. Luke, Director of Commodities, Real Estate, and Digital Assets at S&P Dow Jones Indices, noted: "2024 continues the strong start seen last year, with the largest increases occurring in March and April, followed by a slowdown in the summer and fall."
Luke added: "As summer approaches, the market remains at historic highs, testing its resilience during a more active period of the year." However, the index for the 20 cities shows that prices in several markets have already started to decelerate, suggesting the market may be at a turning point.
One key factor driving up home prices is the housing shortage. Due to rising construction material costs, labor shortages, and limited land supply, the pace of new home construction cannot keep up with demand. Additionally, high mortgage rates have somewhat suppressed demand for homes. The 7% mortgage rate has deterred many potential homebuyers, affecting overall market activity.
On the other hand, low housing inventory is also pushing up prices. Because homeowners are reluctant to sell their existing homes in a high-interest-rate environment, the number of homes available for sale has significantly decreased. This supply-demand imbalance further drives up home prices.
Looking ahead, whether home prices continue to rise will depend on several factors. Firstly, the trend of mortgage rates will be a crucial determining factor. If rates continue to rise, the cost of homeownership will further increase, potentially suppressing demand and affecting the rate of home price growth. Secondly, changes in housing supply will also have a significant impact on the market. If new home construction can accelerate and supply increases, the pressure on home price growth will ease.
