Home Prices Soar to Record High, Squeezing Affordability

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Home prices in the U.S. continued their relentless rise in March, making it tougher for buyers to afford a place of their own as interest rate hikes to combat inflation keep inventory low.

The S&P CoreLogic Case-Shiller 20-city index climbed 7.4 percent year-over-year in March, an acceleration from February’s 7.3 percent increase, according to data released Tuesday.

Compared to February, prices in March were up 1.6 percent in the 20-city index before seasonal adjustments. After adjusting for seasonality, the 20-city index rose 0.3 percent. All major metro markets saw month-over-month price increases.

The Case-Shiller 10-city index rose 8.2 percent year-over-year in March, up from 8.1 percent in February. On a month-to-month basis, the unadjusted index rose 1.6 percent, and the adjusted index rose 0.5 percent.

The National Home Price Index shows a 6.5 percent increase from a year ago in March, unchanged from the previous month. It rose 1.3 percent for the month before seasonal adjustment and 0.3 percent after. The National Index reached a new all-time high, the sixth record-breaking high in the last 12 months.

The median price of a previously owned home was $392,900 in March. The median price of a newly built home was $439,500.

San Diego saw the steepest increase with an 11.1 percent annual rise in home prices, followed by New York, Cleveland, and Los Angeles. Urban markets remain hot, but soaring prices are shutting out more and more potential buyers.

While Sunbelt markets boomed during the pandemic, northern metro areas have surged in recent years, with the Northeast region leading the way, noted Brian D. Luke of S&P Dow Jones Indices. But this growth spells trouble for affordability in these regions.

The index, which tracks repeat-sales data, reports on a two-month delay and reflects a three-month moving average. March data is based on purchase decisions made earlier last year, showing that the dream of homeownership is slipping further out of reach for many.

Mortgage rates have soared as the Federal Reserve fights inflation. Inflation surged shortly after President Biden took office, with the consumer price index’s annual increase rising from 1.4 percent in January 2021 to 9 percent in June 2022. The most recent report shows the consumer price index was up 3.4 percent in April from a year earlier.

Between the spring of 2022 and the summer of 2023, the Fed raised its benchmark interest rate from near zero to the current range of 5.25 percent to 5.50 percent. This pushed up rates on home loans, with the average rate on a 30-year fixed mortgage rising from 2.65 percent in January 2021 to around 6.75 percent in March this year.

Normally, high interest rates weigh on home prices. But the rapid shift to higher rates—triggered by the sudden rise in inflation under President Biden—following a long period of low rates has created a new dynamic in the housing market in which both rates and prices are high.

Most homeowners with mortgages would have to accept much higher rates if they were to sell their current home and buy a new one. As a result, many homeowners are staying put, keeping the number of homes for sale low. The shortage of supply has helped push prices much higher despite high mortgage rates.

The Fed was widely expected to cut rates several times this year. But stubborn inflation has forced Fed officials to delay cuts, saying they will not begin reducing their benchmark federal funds rate until they have seen several months of data providing confidence that inflation will sustainably return to their 2 percent target.

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