S&P Case-Shiller Reports Continued Increase in Home Prices Despite Surge in Mortgage Rates

In September, the S&P CoreLogic Case-Shiller Index revealed a 3.9% increase in home prices compared to the same period last year, despite a surge in 30-year fixed mortgage rates nearing 8%. This growth in home prices contrasts with the recent easing of rents.

The national average saw a 3.9% rise from the previous year, marking an escalation from August’s 2.5% annual increase. This trend persisted even as mortgage rates continued their upward trajectory. Notably, out of 20 metropolitan areas covered in the report, Detroit experienced the most significant annual rise in home prices at 6.7%, followed closely by San Diego and New York with 6.5% and 6.3%, respectively. In contrast, cities like Las Vegas, Phoenix, and Portland, Oregon, which had previously enjoyed substantial price gains during the early years of the Covid-19 pandemic, reported declines in home prices compared to the previous year.

Craig Lazzara, managing director at S&P DJI, commented on the enduring strength of the housing market, noting that while mortgage rate increases have likely dampened home sales, the limited inventory continues to support high prices. Recent weeks have seen a slight decrease in mortgage rates, leading to a modest uptick in mortgage demand.

Year to date, national home prices have seen a 6.1% increase, surpassing the median full-year rise recorded in the over 35-year history of the Case-Shiller Index. This trend has persisted despite the rising mortgage rates, highlighting the robustness of the housing market.

As home prices continue to rise, rental markets are showing signs of relaxation. The national median rent decreased by 0.9% in November from October, marking a 3.5% drop from its peak in August 2022. Despite this decline, rent is still approximately $250 higher per month than it was three years ago. The easing of rents is attributed to both seasonal trends and an increase in supply, with a record number of new apartments entering the market following a construction boom.

The report also notes that the challenge of filling vacancies intensifies as the holiday season approaches, giving renters more leverage in lease negotiations. With the national apartment vacancy rate at 6.4%, slightly above the pre-pandemic average, it is expected to increase further in the coming year. This increase in supply is anticipated to continue moderating rent growth.

Peter Boockvar, chief investment officer at Bleakley Financial Group and a CNBC contributor, suggests that while rental inflation is likely to cool further in 2024, a resurgence in the following years is possible. He points out that, for now, the market is focused on the immediate effects, particularly benefiting renters facing high mortgage rates and challenging home affordability.

In summary, the U.S. housing market remains strong with continued price growth, despite rising mortgage rates. This contrasts with the rental market, where prices are beginning to ease due to increased supply and seasonal factors. The overall picture is one of a resilient housing market juxtaposed with a rental market experiencing a temporary slowdown.