US Home Price Index Breaks ‘All-Time High’

A 'For Sale' sign is posted in front of a home in San Anselmo, Calif., on March 22, 2023. Justin Sullivan/Getty Images

A prominent national index tracking U.S. home prices broke through its previous record high in May, with the gauge registering the highest year-to-date increase in two years.

The S&P CoreLogic Case-Shiller U.S. National Home Price Index jumped by 5.9 percent in May year over year, according to a July 30 report. The index measures changes in single-family home prices across nine U.S. census divisions. In May, the index value exceeded the earlier “all-time high” registered in April. Among the 20 tracked cities, New York saw the biggest gain, with home prices rising by 9.4 percent. This was followed by San Diego and Las Vegas. Portland saw the smallest increase for the month.

The year-over-year price increase in May was lower than the 6.4 percent annual jump in April, suggesting a weakening price growth. “While annual gains have decelerated recently, this may have more to do with 2023 than 2024, as recent performance remains encouraging,” said Brian D. Luke, head of commodities and real and digital assets for S&P.

He pointed out that the index has risen by 4.1 percent year to date, which is the “fastest start in two years.”

“All 20 markets observed annual gains for the last six months. The last time we saw that long a streak was when all markets rose for three years consecutively during the COVID housing boom,” Luke said.

He said that buyers waiting for mortgage rates to cool down more could be making a costly mistake as “home prices march forward.”

Even if rates were to come down, prices could push up further by that time, potentially making housing costs even more expensive.

The average mortgage rate for a 30-year fixed-rate mortgage was 6.78 percent for the week ending July 25, according to data from Freddie Mac. While the rate is lower than the recent peak in late October, this is still more than double the rate from three years ago.

For mortgage rates to come down meaningfully, the U.S. Federal Reserve must bring down interest rates. However, interest rates have remained elevated in the range of 5.25 to 5.50 percent since July last year. It is unclear when the Fed will cut interest rates in a sizable enough way to affect mortgage rates significantly.

“Mortgage rates essentially remained flat from last week but have decreased nearly half a percent from their peak earlier this year,” said Sam Khater, Freddie Mac’s chief economist. “Despite these lower rates, buyers continue to pause.”

Affordability Situation

With annual inflation remaining at 3 percent and showing signs of cooling down in June, the Fed could start lowering interest rates.

“Now that it’s looking increasingly likely the Fed will cut interest rates by the end of the year, some house hunters believe mortgage rates will fall more and are waiting for that to happen before they buy,” said Chen Zhao, Redfin’s economic research lead, according to a July 18 statement from the real estate company.

However, the market is already pricing in rate cuts in September as well as several more over the coming months. Zhao said that “now may be the right time for house hunters to get serious about making offers before prices increase even more and they lose some power.”

There are more homes that buyers can choose from right now, he said, and many listings are “growing stale,” thus giving buyers the opportunity to negotiate lower home prices with sellers.

According to data from the National Association of Realtors, a person had to spend 26.9 percent of their monthly income in May to afford a median-priced existing single-family home, up from 16.9 percent in 2021.

In addition, monthly payments during this period nearly doubled.

As such, not only do buyers have to spend more in monthly mortgage installments but they now also have to set aside a larger portion of their wages, too. This creates significant challenges for prospective buyers, especially in the context of home prices and mortgage rates remaining elevated and even threatening to move higher.