Case-Shiller Index: Home prices still ticking upward

Amid an environment of tight inventory and stubbornly high mortgage rates, housing prices in the U.S. are on the rise — again. S&P CoreLogic’s latest Case-Shiller U.S. National Home Price NSA Index, released April 30, 2024, reports that annual home-price growth increased in February 2024 by 6.4 percent. That’s up from a 6 percent gain in January, which represented the fastest rate of year-over-year growth since 2022.

Case-Shiller Index continues rising

In addition to the 6.4 percent overall increase, February numbers increased for both of Case-Shiller’s composite indices as well, with the 10-city index up 8 percent and the 20-city index up 7.3 percent.

“U.S. home prices continued their drive higher,” said Brian D. Luke, head of commodities, real & digital assets at S&P DJI, in a statement. “Our national composite rose by 6 percent in January, the fastest annual rate since 2022. Stronger gains came from our 10- and 20-city composite indices. On a seasonal adjusted basis, home prices have continued to break through previous all-time highs set last year.”

Regional fluctuation continues

While all cities reported increases in annual prices, some saw much higher jumps than others. San Diego once again led the pack, achieving double-digit growth with an 11.4 percent jump. It was followed by:

• Chicago (8.9 percent)

• Detroit (8.9 percent)

• Los Angeles (8.7 percent)

• New York (8.7 percent)

• Charlotte (8.2 percent)

• Boston (8 percent)

• Miami (8 percent)

Areas that saw the slowest growth were Portland at 2.2 percent and Denver at 2.7 percent.

The Fed and the housing market

The Federal Reserve’s aggressive moves to combat inflation — with 10 consecutive rate hikes over 2022 and 2023 — have put upward pressure on mortgage rates, even as inflation declined. While the Fed doesn’t directly set mortgage rates, the mortgage market’s interpretations of the central bank’s moves influence how much you pay for your home loan.

The long period of low mortgage rates following the Great Recession came to an end in 2022. In June 2022, rates topped 6 percent for the first time since 2008. The upward trend continued through October, when rates hit a 23-year high of 8 percent. Steve Reich, division president at Go Mortgage in Pennsylvania, highlights the impacts that these trends have on the housing market. “As the Fed worked to get inflation under control, higher interest rates tempered what many homebuyers could afford and, in turn, softened home sales,” he said in a statement.

Higher rates also exacerbate the housing shortage, stopping many homeowners from selling when they otherwise might — and thus keeping those homes off the market and out of the supply of available housing.

“The remarkable rise in mortgage rates is acting as a kind of golden handcuffs,” says Mark Hamrick, Bankrate’s senior economic analyst. Higher rates are “limiting the desire and some of the ability of people to move out of the homes they currently own. That further pressures housing inventory, adding insult to supply injury.”

While rates are thankfully no longer hovering near 8 percent, they remain elevated: As of April 24, 2024, the average 30-year mortgage rate sat at 7.31 percent.

“With relatively few homes on the market and pent-up demand only mounting, it’s not surprising that home prices continue to rise,” says Robert Frick, corporate economist with Navy Federal Credit Union. “Lower mortgage rates may bring some relief to home affordability, but with the Fed likely locked into a higher-for-longer rate situation, we shouldn’t expect that anytime soon.”

What the Case-Shiller Index means for homebuyers and sellers

The current market has proved challenging on both sides of the real estate transaction — and unless we see a significant drop in either home prices or mortgage rates, both buyers and sellers will need to go with the flow. “For prospective sellers, the new status quo dictates they remain flexible on price, given the extraordinary challenges posed by the sharp increase in mortgage rates,” Hamrick says.

“Those who are very motivated to purchase a home should be prepared for the sticker shock associated with the increased expense of financing the purchase,” he continues. “Part of the flexibility that may be required includes seeking a possible downgrade of footprint or quality of home, along with the neighborhood, in order to achieve an affordable purchase.

Reich emphasizes that buying a home in today’s market, while difficult, is still possible. “The average time active listings stay on the market is getting longer, resulting in a slightly less competitive market,” he says. National Association of Realtors data proves that out: The median days-on-market length was 33 days in March, up from 29 days in March of last year, which gives buyers more time to make an informed, well-considered decision. “And that’s good news for homebuyers who are still in the game.”