New homes under construction in Tucson, Arizona.
Rebecca Noble | Bloomberg | Getty Images
Home prices in May were 19.7% higher compared to the same month last year, according to the S&P CoreLogic Case-Shiller National Home Price Index.
This is the second month of slower gains as the housing market cools due to higher mortgage rates and growing concerns about inflation. In April, the annual gain was 20.6%.
The 10-city group was up 19% year-on-year, down from 19.6% the previous month. The 20-city aggregate rose 20.5%, down from 21.2% in April.
The cities that saw the strongest gains were Tampa, Miami and Dallas, with year-over-year increases of 36.1%, 34% and 30.8%, respectively. Four of the 20 cities posted higher price increases in the 12 months ending in May compared to the 12 months ending in April. As of February of this year, all 20 cities in the survey were experiencing year-over-year earnings increases.
“Despite this slowdown, growth rates remain extremely robust, with all three composites historically at or above the 98th percentile,” S&P DJI CEO Craig Lazzara said in a statement.
“We have previously noted that mortgage financing has become more expensive as the Federal Reserve has raised interest rates, a process that was ongoing as our May data was collected. Accordingly, an environment more difficult macroeconomic environment may not support extraordinary house price growth much longer,” he added.
Mortgage rates have been rising steadily since January of this year, when the average 30-year fixed rate was around 3%. It rose just over 6% in June and has since settled back to around 5.75%. Given the recent inflation of housing prices, which have increased by 40% since the start of the coronavirus pandemic, the rapid rise in interest rates hit affordability hard. Potential buyers have been sidelined.
“In the short term, transactions are feeling the pressure, with existing home sales down for five consecutive months. Also, with less competition, homes that would have been off the market in a matter of hours last year are lingering ” said George Ratiu. , manager of economic research at Realtor.com. “The proportion of homes seeing price cuts has doubled from a year ago as motivated landlords look to close a deal before more buyers exit the market.”