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Case Shiller: Home Prices Grow at Slowest Pace in 8 Months, still Hit Record High

In July, home prices in the 20 largest U.S. metro areas reached new record highs, but the pace of growth slowed significantly. The S&P CoreLogic Case-Shiller 20-city index showed a 0.3% rise from June and a 5.9% increase over the past year, down from 6.5% the previous month. This was the slowest growth since November 2023, indicating the impact of high prices and mortgage rates on homebuyers. New York saw the highest year-over-year price increase at 8.8%, while Portland had the lowest at 0.8%.

Though prices continue to climb, the deceleration may signal a shift in the market. Falling mortgage rates began in August and could increase buyers’ purchasing power, potentially reigniting competition and pushing prices higher. However, experts suggest that an increase in inventory this fall might slow price growth, offering some relief to affordability concerns. Overall, while home prices have defied expectations this year, the future pace of appreciation remains uncertain.

Affordability Improves as Income-to-Home-Price Ratio Drops

Affordability for U.S. homebuyers improved in August for the first time in four years as mortgage rates dropped to around 6%, lowering the annual income needed to afford a median-priced home to $115,454. This marked a 1.4% decline year over year, the first since June 2020. Despite this improvement, the typical household still cannot afford a home, as the average household earns $83,853, 27.4% less than what’s needed. Households are spending 41.3% of their income on housing costs, well above the 30% threshold that defines affordability.

Southern and Western U.S. cities, such as Austin and San Antonio, saw the most significant gains in affordability, with Austin requiring 7.9% less income to afford a median home compared to last year. In contrast, areas like Philadelphia saw an increase in income needed to afford a home, up 5.8%. Even though affordability has improved, home prices remain high, primarily due to a shortage of homes for sale. National housing payments dropped by 2.7% from last year, but less than one-third of listings are affordable for the average household.

Slowing Price Growth Unlikely to Boost Home Sales

In August, home price growth slowed for the eighth consecutive month, edging closer to pre-pandemic levels. First American’s Home Price Index Report showed a 4.5% year-over-year increase, with national home prices now 54.5% higher than in February 2020. However, housing demand remains weak due to high prices and mortgage rates despite an increase in for-sale inventory. First American’s chief economist Mark Fleming noted that sluggish demand and rising supply are cooling price appreciation.

While the Federal Reserve’s recent interest rate cut could lower mortgage rates further, it’s still being determined if this will significantly boost market activity. Many buyers, who are also sellers, remain “rate-locked” in their current low-rate mortgages, making them hesitant to move. However, first-time homebuyer demand remains strong, with 25 of the top 30 markets showing positive price growth in the starter home segment.