Mortgage rates began to take a toll on price growth as early as this spring. But prices remained more resilient than other market indicators, according to the S&P Corelogic Case-Shiller Index.

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The forces fueling home price growth for the past two years have been weakening in recent months as the market finds itself in the midst of a multi-month slowdown.

Home prices rose by 1 percent in May after accounting for seasonal patterns, according to the S&P Corelogic Case-Shiller Index numbers released on Tuesday. Prices were up nearly 20 percent year over year.

By normal standards, this still represents a remarkably high rate of growth for the prices of U.S. homes. 

“Housing data for May 2022 continued strong, as price gains decelerated slightly from very high levels,” S&P Dow Jones Industrial Managing Director Craig Lazzara said in a statement.

But throughout the COVID-19 pandemic, conditions have been far from normal. Cheap mortgages in the first couple years of the pandemic helped drive up demand for homes — and the prices for which they would sell — to previously unseen levels. 

Since the start of the year, however, mortgage rates have climbed from around 3 percent to well over 5 percent. And after posting its second consecutive month of decline in price increases, the housing market in May reached its lowest rate of price growth since July 2020, by Case-Shiller’s measure.

“We’ve noted previously that mortgage financing has become more expensive as the Federal Reserve ratchets up interest rates, a process that was ongoing as our May data were gathered,” Lazzara said in the report. “Accordingly, a more-challenging macroeconomic environment may not support extraordinary home price growth for much longer.”

Another measure of home price growth released Tuesday painted a similar picture. Prices rose by 1.4 percent in May on a seasonally adjusted basis, and were up 18 percent year over year, according to the Federal Housing Finance Agency House Price Index.

This FHFA estimate caps three consecutive months of slowdowns in price growth since the 1.9 percent monthly increase observed in February.

​​“House prices continued to rise in May, but at a slower pace,” FHFA supervisory economist Will Doerner said in the HPI report. “Since peaking in February, price appreciation has moderated slightly. Price growth continues to remain above historical levels, supported by the low inventory of properties for sale.”

Despite this slowdown, prices have so far proven more resilient in the face of this higher-rate environment than other measures of home market activity. 

The number of homes sold, general residential construction activity, and the extremely seller-friendly bargaining conditions in previous months have all been eroding quickly, even as the ultimate sale price of a typical home has continued to climb.

But in some parts of the country, the price-growth party appears to be already over.

Throughout the Pacific region, monthly price growth in May slowed to 0.2 percent, according to FHFA’s measure. That’s the equivalent of the national price increases that were occurring in April 2020, before the home market’s stunning surge kicked in after the initial shutdown-induced shock at the beginning of the pandemic.

Prices were still rising fastest in the New England area, which saw 2 percent price growth from April to May.

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