Home prices in August hinted at possible cooling in the market, S&P Case-Shiller says

On September 24, 2020, a sign was posted on Hamilton Cottages in Novato.
Justin Sullivan | Getty Images

The red-hot housing market may be experiencing a slowdown in price growth.

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. It is the first annual increase in prices since 2020.

Composite annual increases in 10 cities were 18.6% down from July’s 19.2%. From 20% the month before, the composite 20 cities rose by 19.7%. All cities are experiencing record prices.

“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 suggests that housing price growth may slow down, even though it is still strong.

The highest annual gains of the 20 major cities were seen in August by Phoenix, San Diego and Tampa. The highest year-over-year increases among the 20 cities in August were recorded by Phoenix with 33.3%. San Diego followed with 26.2% and Tampa with 25.9%.

Eighteen of 20 cities experienced higher prices in August 2021 than the July 2021 year.

The drop in interest rates on mortgages in August and July partly drove price gains. In July, the average interest rate for the 30-year fixed mortgage fell to 3% and held there until September. According to Mortgage News Daily, it has been steadily rising to 3.25%. In the next few months, higher interest rates may help to cool down home prices.

The demand for homebuyers and investors is high so it’s unlikely that prices will drop. There is still a lot of inventory available, particularly at the lower ends of the market. Although some new inventory was available over the summer it continues to fall.

CoreLogic’s deputy chief economist Selma Shepp stated, “Persistently strong buyer demand from traditional homebuyers is amplified through an increase of demand among investors this Summer.” Although home prices appreciate at a slower pace, this is not affecting the buyer pool, and especially the first-time buyers. However, there will be a strong demand for higher-income buyers and a deeper supply/demand gap that will keep the prices rising.

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