Home prices in the US continued to soar in July, reaching a new record high for the sixth consecutive month, as low inventory and high demand drove up the competition among buyers. According to the latest data from the S&P CoreLogic Case-Shiller National Home Price Index, home prices rose 0.6% month-over-month and 1% year-over-year in July, surpassing the previous peak set in June 2022.
Home Price Recovery is Broadly Based
The S&P CoreLogic Case-Shiller National Home Price Index measures the changes in the value of residential real estate across the US. The index covers all nine US census divisions and is calculated monthly using a three-month moving average. The index is based on the repeat sales method, which compares the prices of the same properties over time.
The index showed that the home price recovery was broadly based across the country, as 10 of the 20 cities in the sample reached all-time high levels in July. Prices rose in all 20 cities after seasonal adjustment, and in 19 of them before adjustment. The only city that saw a decline in prices before adjustment was San Francisco, which dropped 0.1% from June to July.
The cities with the highest annual price appreciation in July were Chicago, up 4.4%; Cleveland, up 4.0%; and New York, up 3.8%. These three cities also led the price growth in June. The cities with the lowest annual price appreciation in July were Phoenix, up 0.5%; Las Vegas, up 0.6%; and Miami, up 0.7%.
Low Inventory and High Demand Fuel the Price Surge
The main drivers of the home price surge are the low inventory of homes for sale and the high demand from buyers, especially in the wake of the coronavirus pandemic. According to the National Association of Realtors (NAR), the inventory of existing homes for sale in July was 1.32 million units, down 12% from June and 21.1% from July 2022. The unsold inventory was at a 2.6-month supply at the current sales pace, down from 3.9 months in July 2022.
The low inventory has created a seller’s market, where buyers have to compete with each other and offer higher prices to secure a home. The NAR reported that the median existing-home price for all housing types in July was $406,700, up 1.9% from June and 17.8% from July 2022. This was the 113th straight month of year-over-year price gains.
The high demand for homes is partly driven by the low mortgage rates, which make homeownership more affordable for many buyers. The average 30-year fixed-rate mortgage in July was 3.02%, down from 3.16% in June and 3.77% in July 2022, according to Freddie Mac. The low rates have also spurred refinancing activity, which increased the home equity of many homeowners and enabled them to sell their homes at a profit.
Another factor that has boosted the demand for homes is the changing preferences of buyers in the post-pandemic era. Many buyers are looking for larger homes with more space and amenities, such as home offices, gyms, and outdoor areas. Some buyers are also relocating to more affordable or less dense areas, as remote work and online education have become more prevalent.
Home Price Growth May Slow Down in the Coming Months
While home prices are expected to remain high in the near term, some signs suggest that the price growth may slow down in the coming months. One sign is the increase in the supply of new homes for sale, which could ease the inventory shortage and provide more choices for buyers. According to the Census Bureau, the inventory of new homes for sale in July was 367,000 units, up 5.5% from June and 26.1% from July 2022. The median sales price of new homes sold in July was $390,500, down 4.6% from June and 6.1% from July 2022.
Another sign is the decrease in the pending home sales, which are contracts signed but not yet closed, and indicate the future activity of the housing market. According to the NAR, the Pending Home Sales Index, a forward-looking indicator based on contract signings, fell 1.8% in July from June and 8.5% from July 2022. This was the second consecutive month of decline and the lowest level since January 2021.
The NAR attributed the decline in pending home sales to the affordability challenges faced by many buyers, as the rising home prices and the limited inventory have priced out some potential buyers. The NAR also noted that some buyers have become frustrated by the intense competition and the lack of options in the market, and have decided to postpone or cancel their home search.
The slowdown in the home price growth may also be influenced by the changes in the monetary policy of the Federal Reserve, which could affect the mortgage rates and the availability of credit. The Fed has indicated that it may start tapering its bond-buying program, which has helped keep the interest rates low, by the end of this year, depending on the economic conditions. The Fed has also signaled that it may raise its benchmark interest rate, which influences the mortgage rates, in 2023, sooner than previously expected.