Home prices in August hinted at possible cooling in the market, S&P Case-Shiller says
A sign is posted in front of new homes for sale at Hamilton Cottages on September 24, 2020 in Novato, California.
Justin Sullivan | Getty Images
There are signs that price growth could be cooling off in the otherwise red-hot housing market.
Prices rose 19.8% year over year in August, which was the same as the previous month, according to the S&P CoreLogic Case-Shiller Indices. That is the first time the annual gain hasn’t increased since early 2020.
The 10-city composite annual increase was 18.6%, down from 19.2% in July. The 20-city composite rose 19.7% year over year, down from 20% in the previous month. Prices in all cities covered are at an all-time high.
“We have previously suggested that the strength in the U.S. housing market is being driven in part by a reaction to the Covid pandemic, as potential buyers move from urban apartments to suburban homes,” said Craig Lazzara, managing director and global head of index investment strategy at S&P DJI. “August data also suggest that the growth in housing prices, while still very strong, may be beginning to decelerate.”
Phoenix, San Diego and Tampa, Florida, saw the highest year-over-year gains among the 20 cities in August. Phoenix led the way with a 33.3% year-over-year price increase, followed by San Diego with a 26.2% rise and Tampa with a 25.9% increase.
Eight of the 20 cities reported higher price increases in the year ended in August 2021 versus the year ended in July 2021.
Price gains were partly fueled by a drop in mortgage rates in July and August. The average rate on the popular 30-year fixed loan fell below 3% in July and stayed there until mid-September. It then began to rise sharply and is now around 3.25%, according to Mortgage News Daily. Higher interest rates could take some of the heat out of home prices in the coming months.
Home prices, however, are unlikely to cool significantly, as both homebuyer demand and investor demand are still high. The supply of homes for sale, especially at the lower end of the market, remains extremely lean. Some new supply did come on over the summer, but it is falling yet again.
“Persistently strong demand among traditional homebuyers has been amplified by an increase in demand among investors this summer,” said Selma Hepp, deputy chief economist at CoreLogic. “While strong home price appreciation rates are narrowing the pool of buyers, particularly first-time buyers, the depth of the supply and demand imbalance and robust demand among higher-income earners will continue to push prices higher.”