S&P Case-Shiller: October Home Prices Surge Despite Higher Mortgage Rates

In October, home prices surged by 4.8% nationally compared to the same month in 2022, marking the most robust annual gain in 2023, surpassing the 4% increase seen in September, according to the S&P CoreLogic Case-Shiller home price index. The 10-city composite reported a 5.7% increase, up from 4.8% in the previous month, while the 20-city composite rose by 4.9%, an improvement from the 3.9% advance in September. Despite a significant spike in mortgage interest rates in October, reaching over 8%, home prices continued to rise, leaning into the higher mortgage rates. Detroit led with an 8.1% year-over-year gain, followed by San Diego at 7.2%, while Portland, Oregon, was the only city in the index to show a decrease in home prices, falling by 0.6%.

Brian Luke, head of commodities, real & digital assets at S&P DJI, noted that with mortgage rates easing and the Federal Reserve indicating a slightly more accommodative stance, homeowners may witness further appreciation in home values. CoreLogic’s chief economist, Selma Hepp, highlighted a 7% increase in home price gains since the beginning of the year, surpassing the peak in 2022 and recovering all losses recorded in the year’s second half. She anticipates that annual home price appreciation will accelerate during the winter before slowing down again in the coming year.

Mortgage Payments Declined Almost 3% in November

Homebuyer affordability improved in November, which was marked by a decline in mortgage rates, as per the Mortgage Bankers Association’s Purchase Applications Payment Index (PAPI). The national median payment requested by purchase applicants decreased from $2,199 to $2,137. Edward Seiler, MBA’s Associate Vice President, noted that this improvement is expected to continue as mortgage rates decline, fostering increased demand as the spring homebuying season approaches. The PAPI, measuring the mortgage payment to income ratio, dropped 2.8% to 170.9 in November, reaching its lowest level since February 2023. Median earnings saw a 3.9% increase, while payments rose 8.1%. For those seeking lower-payment mortgages, the national mortgage payment declined to $1,425 in November.

The Builders’ Purchase Application Payment Index (BPAPI) echoed this trend, decreasing the median mortgage payment from $2,672 in October to $2,597 in November, reinforcing the positive shift in homebuyer affordability.

Home Sales Gain Momentum for 2024

Existing home sales in November experienced a 0.8% uptick, breaking a five-month decline streak and offering optimism for a more favorable real estate market in 2024. Lawrence Yun, Chief Economist at the National Association of REALTORS® (NAR), notes that as borrowing costs decrease, existing home sales are expected to rise further. However, November sales were down 7.3% from the previous year, with home prices continuing to climb, up 4% year-over-year to a median of $387,600.

With limited housing inventory, builders are increasing construction efforts to attract buyers. Single-family home construction surged 18% in November compared to the previous month and 42% year-over-year. Despite higher mortgage rates, new-home sales have increased this year, driven by builders offering incentives like lower interest rates. The NAR anticipates a 4% increase in single-family starts in 2024, expecting lower mortgage rates and reduced inflation. Bidding wars persist, and 62% of properties sold in November were on the market for less than a month, with 25 days being the average time on the market. First-time buyers are making up a larger share, representing 31% of existing-home sales in November, up from 28% the previous year.

Source:

Vaimberg, Ron. “Weekly Newsletter – January 6, 2023.” Ron Vaimberg International, Ron Vaimberg, 6 Jan. 2023, https://rvionline.thinkific.com/courses/take/rvi-weekly-newsletter/texts/41523497-weekly-newsletter-january-6-2023.