Regional Disparities Evident as Home Prices Continue to Surge
In May, home prices continued their upward trend, marking the fourth consecutive monthly increase according to the S&P CoreLogic Case-Shiller home price index. However, regional disparities are becoming more apparent.
Despite a significant rise in mortgage interest rates during the month, home prices rose 0.7% on a national level, after seasonal adjustments. The 10-city composite of the index saw a gain of 1.1%, while the 20-city composite increased by 1%.
Compared to May 2022, national prices were still down 0.5%, but only 1% below their peak from June 2022. Year over year, the 10-city composite witnessed a decline of 1%, slightly less than the 1.1% decrease in the previous month. The 20-city composite dropped by 1.7%, matching the annual decline in April.
Craig Lazzara, the managing director at the S&P DJI, commented, “Home prices in the U.S. began to decline after June 2022, and the data for May supports the case that the final month of the decline was January 2023. The recent price gains could potentially be limited by increases in mortgage rates or overall economic weakness. However, the broad and strong performance shown in May’s report aligns with an optimistic outlook for the coming months.”
Lazzara also highlighted the significant regional variations, with Rust Belt cities outperforming the rest of the country. Chicago experienced a gain of 4.6%, followed by Cleveland with 3.9% and New York with 3.5%, making them the top performers. The Midwest surpassed the South as the strongest region, which was an unusual occurrence.
Among the 20-city composite, half of the cities recorded lower prices in the year ending May 2023 compared to the previous year, while the other half saw price increases. Cities in the West, where prices had soared the most, performed poorly in May. Seattle and San Francisco experienced the steepest declines, with price drops of 11.3% and 11% respectively.
The resurgence in prices can be attributed to the persistently low supply in the housing market. Many existing homeowners are reluctant to sell due to their mortgages being at rates significantly lower than current ones. Demand has returned after the initial spike in mortgage rates, as buyers adjust to the new market conditions.
Hannah Jones, a research analyst at Realtor.com, noted, “The housing market remains unaffordable for many buyers, but certain areas are witnessing high levels of competition due to limited inventory for sale.”