Home prices are starting to drop as decade-high mortgage rates lower demand for housing.
- Home prices are starting to decline after a 1.6% decline in year-over-year home price growth from July to August.
- The drop is the largest one-month decline in the 27-year history of the S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index.
- Prices are still 15.8% higher than July last year, but dropping.
- As mortgage rates near 7%, economists are watching to see how the high rates will continue to be a drag on housing prices.
Why it’s news
Record high mortgage rates may have beaten down record high home prices. Potential home buyers have been driven away from home ownership due to high mortgage rates, but now with prices dropping, new homeowners may re-enter the market.
At the beginning of this year, home prices rose 9.5% from January to May, a shocking speed that left many homebuyers priced out of the market. As the summer began in June, increases slowed down, but the decrease in August is the first in a while.
Declines vary across the country, but 77% of metro areas are experiencing a reduction in pricing, according to the American Enterprise Institute (AEI). Even with the drop, housing prices remain stubbornly higher than last year.
Western and west coast cities are showing the most consistent declines, likely connected to the number of residents leaving states like California due to high housing prices.
AEI director Ed Pinto says that he expects the decline to continue, though at a sluggish rate.
In August, 45 of the 58 cities AEI collected data from experienced negative price growth. Though the shift isn’t a trend, it is noteworthy. Some midwestern cities that didn’t enjoy the housing market boom were on that list. Here they are. . .
- Omaha -3.5%
- Cincinnati -1.5%
- St. Louis -1.5%
- Kansas City -1.3%
- Philadelphia -1.2%