Home Prices Continue Climbing Despite Surging Mortgage Rates, S&P Case-Shiller Reports.
The impact of soaring mortgage rates on housing prices remains minimal, with home values continuing to climb despite the upward trend in interest rates.
According to the S&P CoreLogic Case-Shiller Index, national home prices in September surged by 3.9% compared to last year, marking a significant increase from the 2.5% gain witnessed in August. Notably, this surge persisted even as the average rate for a 30-year fixed mortgage approached 8%.
Analyzing the 20 metropolitan markets highlighted in the report, Detroit recorded the most substantial annual increase at 6.7%, closely followed by San Diego at 6.5% and New York at 6.3%.
However, three cities—Las Vegas, Phoenix, and Portland, Oregon—reported a decline in prices compared to a year ago, despite being among the major gainers in the initial years of the Covid-19 pandemic.
Craig Lazzara, managing director at S&P DJI, emphasized the remarkable resilience and breadth of strength within the housing market. He noted that while the increase in mortgage rates might have impacted the number of homes sold, the persistent shortage of available inventory has provided robust support for escalating prices.
Despite recent fluctuations, mortgage rates have shown signs of stabilization in the past few weeks, resulting in a slight uptick in mortgage demand. Year-to-date, national home prices have surged by 6.1%, far surpassing the median full calendar year increase observed in more than 35 years of data tracked by this index.
Lazzara expressed an optimistic outlook for future results, provided no substantial economic downturns are due to higher rates or unforeseen events. He highlighted that the strength and breadth demonstrated in the latest report align with a positive perspective on future outcomes.
However, while home prices soar, the rental market tells a different story. According to Apartment List, the national median rent declined by 0.9% in November compared to October, marking a 3.5% drop from its peak in August 2022. Despite this decline, rents remain nearly $250 higher per month than three years ago.
The decline in rents can be attributed to seasonal variations and an influx of new apartment supply resulting from increased construction activity in the sector. The report indicates that vacancies become more challenging to fill as the holiday season approaches, giving renters greater leverage in negotiating leases.
Looking ahead, rent growth is expected to be tempered by an increase in supply next year. The national apartment vacancy rate currently stands at 6.4%, slightly higher than the pre-pandemic average, and is anticipated to rise further in the coming year.
Peter Boockvar, chief investment officer at Bleakley Financial Group and a CNBC contributor, commented on the anticipated moderation in rental growth.
He suggested that while rental growth might pick up seasonally in the spring, the ongoing deceleration is evident and is likely to reflect in the Consumer Price Index (CPI) data.
Boockvar highlighted a potential easing of inflation in 2024 but cautioned about a subsequent reacceleration in the following years.
He emphasized that despite market concerns primarily focusing on current conditions, renters are likely to appreciate the slowdown, especially when faced with mortgage rates exceeding 7% and challenging affordability in homeownership.
