On February 20, 2023 in San Francisco, California, a for sale sign is in front of a house that is for sale.
Justin Sullivan | Getty Images
Home prices hit an all-time high in May, rising 0.7% nationally compared to April at a seasonally adjusted rate, according to the Black Knight Home Price Index.
Prices, which have been rising since January, were 0.1% higher in May than a year earlier.
Last year’s sharp rise in mortgage rates threw cold water at an overheated housing market, but that didn’t last long. Even with rates still high, house prices are now rising again, and profits are accelerating with each new month.
“There’s no question that the housing market has picked up steam from a home price perspective,” said Andy Walden, vice president of corporate research at Black Knight.
While backward annual growth fell to 0.1%, May’s exceptionally strong +0.7% month-on-month increase would equate to a year-on-year growth rate of 8.9%, suggesting that annual house price growth on or near 0.% for just a short time before bending and rising sharply in the coming months,” Walden added.
Prices began to fall last summer, after the average interest rate on the 30-year fixed-rate mortgage more than doubled in just six months. They continued to fall until January, when buyer demand returned but faced very tight supply. Buyers may have just gotten used to higher rates.
“Earlier this year I shared my belief that 6% mortgage rates were being accepted as the new normal. I think we are now in an environment where 7% mortgage rates are now the new normal, and people are accepting it,” Robert Reffkin, CEO of Compass Real Estate said on CNBC’s “Squawk on the Street” last week.
By May, just over half of the country’s 50 largest housing markets, mostly in the Midwest and Northeast, had either returned to their previous price spikes or reached new highs.
House prices are still weaker in the West and in many of the cities considered pandemic boom towns, where an influx of remote workers found new homes in the early days of Covid.
But those prices are starting to rise. Homes in San Jose, California, lost 10% of their value last year, but stocks are starting to fall again and prices there are now rising again. They were up 1.4% in May, the second largest month-on-month increase of any market on a seasonally adjusted basis. San Diego, Los Angeles, San Francisco and Seattle also saw price increases in May.
The only exception is Austin, Texas, one of the largest cities with a pandemic.
“Inventories there remain above pre-pandemic levels, putting downward pressure on prices, which have fallen to -13.8% below peak, the largest gap of any market. Only eight of the top 50 markets are currently more than 5% below their 2022 peak,” Walden said.
In general, however, the supply is decreasing again. New listings are about 25% lower than a year ago, as homeowners with mortgage rates below 4% are reluctant to sell their homes and may pay much higher interest rates for another home. The total stock is now about half of what it was just before the pandemic, which triggered a massive boom in the housing market.
Second-hand home sales are still much weaker than a year ago, but that has less to do with higher costs and more to do with less supply. The median price of a second-hand home in May was $396,100, according to the National Association of Realtors. Redfin, a real estate brokerage, reported last week that the average home is now selling just above list price for the first time in nearly a year.
Bidding wars are clearly returning, even as affordability takes a hit. As of June 22, with a 30-year interest rate of 6.67%, according to Black Knight, $2,258 per month in principal and interest was required to make the monthly payment for a mid-priced home at a 20% discount with a 30-year mortgage . That’s the highest payment ever recorded, slightly up from the required $2,234 in October.