After steadily declining for seven months in a row, housing prices have increased for the second straight month, according to a new report. S&P CoreLogic’s latest Case-Shiller U.S. National Home Price NSA Index, released May 30, reports that home-price growth rose in March 2023 by 1.3 percent, a modest jump but still much higher than February’s 0.2 percent.

Home prices ‘accelerating’

“The modest increases in home prices we saw a month ago accelerated in March 2023,” said Craig J. Lazzara, managing director at S&P DJI, in a statement. “The national composite rose by 1.3 percent in March, and now stands only 3.6 percent below its June 2022 peak. Our 10- and 20-city composites performed similarly, with March gains of 1.6 percent and 1.5 percent respectively.”

The increases are especially pronounced in the Southeast, which led the country for highest gains, while the West continues to see more marked declines. “One of the most interesting aspects of our report continues to lie in its stark regional differences,” Lazzara said.

In the Southeast, Miami was the best-performing city for the eighth consecutive month with a 7.7 percent year-over-year gain. The next-biggest gainers were also Sun Belt cities: Tampa (+4.8 percent) and Charlotte (+4.7 percent).

Conversely, the West remains the country’s weakest region: “The farther west we look, the weaker prices are,” Lazzara said. Seattle has now surpassed San Francisco as the biggest dropper; both cities are in double-digit negative territory year-over-year with -12.4 percent and -11.2 percent drops, respectively.

“Two months of increasing prices do not a definitive recovery make, but March’s results suggest that the decline in home prices that began in June 2022 may have come to an end,” Lazzara said. High mortgage rates and continued economic uncertainty are still challenges, he added.

The Fed and the housing market

The Federal Reserve’s aggressive moves to combat inflation have put upward pressure on mortgage rates. In the beginning of May, the Fed issued its 10th consecutive rate hike, and it remains to be seen whether another one might be coming in mid-June. 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 May 2023, the average 30-year mortgage rate was 6.84 percent.

Steve Reich, Finance of America Mortgage’s chief operations officer, highlights the impacts that these trends have on the housing market. “Home price appreciation has continued to slow as the Fed works to get inflation under control,” he said in a statement. “The gradual slowdown can be attributed to higher interest rates, which tempered what many homebuyers can afford and, in turn, softened home sales.”

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
Higher rates are “limiting the desire and some of the ability of people to move out of the homes they currently own,” Hamrick says. “That will further pressure 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. “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,” Hamrick 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 is still possible: “The average time active listings stay on the market is getting longer, resulting in a slightly less competitive market,” he says. “And that’s good news for homebuyers who are still in the game.”