After steadily declining for seven consecutive months, housing prices have now increased for the fifth month in a row, according to a new report. S&P CoreLogic’s latest Case-Shiller U.S. National Home Price NSA Index, released August 29, reports that home-price growth rose in June 2023 by 0.9 percent, slightly less than May’s 1.2 percent jump. June marks the fourth straight month in which all 20 metro markets measured by Case-Shiller reported month-over-month price increases.

Home prices at or near all-time highs

“U.S. home prices continued to increase in June 2023,” said Craig J. Lazzara, managing director at S&P DJI, in a statement. “Our national composite rose by 0.9 percent in June, and it now stands only 0.02 percent below its all-time peak from exactly one year ago. Our 10- and 20-city composites likewise each gained 0.9 percent in June 2023, and stand 0.5 and 1.2 percent, respectively, below their June 2022 peaks.”

Half the cities in the index’s sample currently sit at all-time highs, Lazzara pointed out. “As we’ve noted previously, the ongoing recovery in home prices is broadly based. Prices rose in all 20 cities in June, both before and after seasonal adjustment. June is the fifth consecutive month in which home prices have increased across the U.S. With 2023 half over, the national composite has risen 4.7 percent, which is slightly above the median full calendar year increase in more than 35 years of data. The breadth and strength of this month’s report are consistent with an optimistic view of future results.”

Regional fluctuation continues

“Regional differences continue to be striking,” Lazzara said. May’s so-called “revenge of the Rust Belt” continued in June, with Chicago and Cleveland leading major metro performances with 4.2 percent and 4.1 percent jumps, respectively. New York City, an outlier, took the third spot with a 3.4 percent increase.

“At the other end of the scale, the worst performers continue to be in the Pacific and Mountain time zones,” he said. The two biggest decliners were San Francisco, down 9.7 percent, and Seattle, down 8.8 percent.

Overall, the Midwest remains the nation’s strongest region in June with a 2.8 increase, followed by the Northeast, up 1.6 percent. The West saw a 5.9 percent decline.

The Fed and the housing market

The Federal Reserve’s aggressive moves to combat inflation — with 10 consecutive rate hikes before taking a “pause” in June and then resuming in July — have put upward pressure on mortgage rates. While the Fed doesn’t directly set mortgage rates, the mortgage market’s interpretations of the central bank’s moves influence how much you pay for your home loan.

The long period of low mortgage rates following the Great Recession came to an end in 2022. In June 2022, rates topped 6 percent for the first time since 2008. The upward trend continued in October, when rates topped rates topped 7 percent. As of late August 2023, the average 30-year mortgage rate was 7.36 percent — a high not seen in more than 20 years.

Steve Reich, division president at Go Mortgage in Pennsylvania, highlights the impacts that these trends have on the housing market. “As the Fed works to get inflation under control, higher interest rates tempered what many homebuyers can afford and, in turn, softened home sales,” he said in a statement.

The higher rates also exacerbate the housing shortage, stopping many homeowners from selling when they otherwise might — and thus keeping those homes off the market and out of the supply of available housing.

The remarkable rise in mortgage rates is acting as a kind of golden handcuffs. — Mark Hamrick, Bankrate Senior Economic Analyst
“The remarkable rise in mortgage rates is acting as a kind of golden handcuffs,” says Mark Hamrick, Bankrate’s senior economic analyst. Higher rates are “limiting the desire and some of the ability of people to move out of the homes they currently own. That further pressures housing inventory, adding insult to supply injury.”

What it means for homebuyers and sellers

Both buyers and sellers need to go with the flow in the current market, which has proved challenging on both sides of the transaction. “For prospective sellers, the new status quo dictates they remain flexible on price, given the extraordinary challenges posed by the sharp increase in mortgage rates,” Hamrick says.

“Those who are very motivated to purchase a home should be prepared for the sticker shock associated with the increased expense of financing the purchase,” he continues. “Part of the flexibility that may be required includes seeking a possible downgrade of footprint or quality of home, along with the neighborhood, in order to achieve an affordable purchase.”

Reich emphasizes that buying a home in today’s market, while difficult, is still possible. “The average time active listings stay on the market is getting longer, resulting in a slightly less competitive market,” he says. National Association of Realtors data proves that out: The median days-on-market length was 20 days in July, up from 14 in July 2022. “And that’s good news for homebuyers who are still in the game.”