US home prices began the summer at a record high, continuing a trend that has persisted throughout the year. However, the pace of price increases slowed in June, offering a potential respite for prospective buyers.
Record-Breaking Prices, Slowing Growth
The S&P CoreLogic Case-Shiller National Home Price Index increased by 0.2% in June, compared to the previous month. This rise, though lower than the 0.3% increase seen in May, marks the fifth consecutive monthly increase and an all-time high for the index. On an annual basis, prices nationally rose by 5.4%, slightly down from the 5.9% jump recorded in May.
The index tracking home prices in the 20 largest US cities gained 0.4% in June from May. This exceeded the Bloomberg consensus estimate of 0.3% and matched May’s monthly increase. The 20-city index also rose 6.5% compared to last June.
US Home Prices – Affordability Challenges Remain
Despite the slowing price growth, affordability challenges continue to impact the housing market. New York reported the highest year-over-year gains among the 20 metro areas tracked by Case-Shiller in June, with annual price increases reaching 9%. San Diego and Las Vegas followed closely with gains of 8.7% and 8.5%, respectively.
The National Association of Realtors (NAR) affordability index measures how well a typical family can afford a median-priced home. It indicates that families should spend up to 25% of their qualifying income on a mortgage with a 20% down payment. On a national level, the average mortgage payment rose 6.3%, or $137, in the last 12 months to $2,303 in June. It also increased by 1.0%, or $23, from last month. Any value below 100 on the index means the typical family cannot afford a median-priced home.
Impact of Lower Interest Rates
Recent declines in mortgage rates have raised hopes that affordability challenges may ease in the coming months. However, expectations of further rate cuts are keeping buyers and sellers in a wait-and-see mode.
Morgan Stanley believes that lower mortgage rates will help ease affordability challenges for homebuyers, boosting sales activity and slowing home price growth. As mortgage rates decrease, the inventory of homes for sale is increasing. When combined with improvements in affordability, this should lead to higher sales volumes in the coming year.
James Egan, Morgan Stanley’s housing strategist, noted, “As rates come down, for-sale inventory is increasing. This should catalyze increased sales volumes in the coming year.”
In summary, while US home prices hit record highs, the market is witnessing a moderation in price growth. Affordability remains a concern, but declining mortgage rates may offer hope for potential buyers in the future.
Source – Yahoo Finance
