Home Prices Hit Record High in August
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Home prices finished the summer at another record high as home affordability tanks to a historical low. The S&P CoreLogic Case-Shiller National Home Price Index increased 0.9% in August month over month and 2.6% annually on a seasonally adjusted basis. The index has risen for seven consecutive months and hit an all-time index high in August. The index tracking existing home prices in the 20 largest US cities also gained 1.0% in August from July, exceeding the Bloomberg consensus estimate of 0.8%. The 20-city index rose 2.2% compared to last August. August's home price increase demonstrates that underlying demand for housing is still outpacing supply even as it becomes more expensive to buy. On a seasonally adjusted basis, prices increased in 19 of 20 cities in August (and Cleveland only missed by a whisker); before seasonal adjustments, prices rose in 13 cities. The re-acceleration in home prices late this summer — coupled with higher mortgage rates — pushed buyer affordability to a new low, according to the National Association of Realtors. The NAR affordability index dropped to 91.7 in August from 93.9 a month prior and 110.5 a year ago. That was the lowest point on records dating back to 1989. Any value below 100 means the typical family cannot afford a median-priced home. The affordability index measures the typical family's ability to pay up to 25% of their qualifying income on a median-priced home mortgage with a 20% down payment. On a national level, the average mortgage payment rose 26.2%, or $464, in the last 12 months to $2,234 in August and 2.9%, or $63, from July, the NAR report found. The majority of the sharp increases in affordability can be attributed to rising interest rates — with the average mortgage rate jumping to 7.15% in August from 5.29% last year. Not only do higher mortgage rates directly push up the mortgage payment, but they indirectly are driving up home prices. Potential sellers are not putting their home on the market because they don’t want to give up their current low rate on their mortgage and take on a new home loan with a much higher rate. That’s causing a supply chokehold in the market. Sales of previously occupied U.S. homes in September fell for the fourth month in a row, grinding to their slowest pace in more than a decade as prospective homebuyers grapple with surging mortgage rates and a near historic-low level of properties on the market. This may not be the end of record prices. For instance, CoreLogic expects home prices to grow 0.2% in September from August. The firm also expects next year to post price acceleration, predicting prices will increase on a year-over-year basis by 3.4% from August 2023 to August 2024. "While continued mortgage rate increases challenge affordability across US housing markets, home price growth is in line with typical seasonal averages, reflecting strong demand bolstered by a healthy labor market, strong wage growth, and supporting demographic trends," Selma Hepp, chief economist for CoreLogic, said. So far, the average rate on the 30-year mortgage has progressively risen closer to 8% in recent weeks, following the yield on the 10-year Treasury, which momentarily surpassed 5% a week ago for the first time in 16 years.