The housing market has grown less affordable over the last 4 months, even as prices just saw their biggest annual decline in a decade
- Home prices just saw their biggest year-over-year drop since 2012, Case-Shiller data shows.
- But on a monthly basis, home prices rose for the fourth consecutive month in May.
Is the housing market getting more or less affordable? It depends on how big of a snapshot you take.
On an annual basis, home prices declined 0.5% in May, according to the S&P CoreLogic Case-Shiller National Home Price Index. That's the steepest year-over-year drop since 2012. The prior month saw a 0.1% annual dip.
Meanwhile, home prices ticked higher 0.7% in May from the prior month on a seasonally adjusted basis, marking the fourth straight monthly gain. That brought the index reading to 305.15, the highest since July 2022.
All 20 major metro markets reported monthly price gains, marking the third consecutive month of across-the-board climbs.
"Home prices in the US began to fall after June 2022, and May's data bolster the case that the final month of the decline was January 2023," Craig J. Lazzara, Managing Director at S&P DJI, said. "Granted, the last four months' price gains could be truncated by increases in mortgage rates or by general economic weakness. But the breadth and strength of May's report are consistent with an optimistic view of future months."
Measured annually, there was an even split among the top metros, with 10 cities seeing higher prices and 10 seeing lower prices. Chicago, Cleveland, and New York saw the steepest year-over-year price growth, at 4.6%, 3.9%, and 3.5%, respectively.
Conventional wisdom suggests that prices would fall as interest rates move higher, but a mismatch between supply and demand has kept price swings muted. Even after 10 consecutive rate hikes from the Federal Reserve, and likely more to come, a lack of affordability and low housing inventory have sidelined buyers and made current owners reluctant to move.
In a July report, Moody's strategists said they expect high mortgage rates to weigh on prospective buyers and homeowners looking to refinance for years to come. Central banks around the world, they explained, aren't likely to cut benchmark rates anytime soon, which will keep upward pressure on mortgage payments.
"We expect central banks to maintain a tight monetary policy stance this year, before beginning to cut policy rates very gradually in 2024," the researchers wrote. "Housing demand in markets in which funding takes the form of floating rate or short-term lending will therefore likely remain strained as long as monetary policy stance remains tight."