WASHINGTON – U.S. home prices rose in July at the slowest pace in 10 months as climbing mortgage rates become a more significant factor for a growing number of prospective buyers.
The S&P CoreLogic Case-Shiller 20-city home price index increased 5.9 per cent in July compared with a year earlier, down from a 6.4 per cent annual gain the previous month.
Home prices are rising at twice the rate of wages, which has likely contributed to a cooling in the market this year. Sales of existing homes have dropped 1.5 per cent in the past 12 months. Mortgage rates last week reached their highest level since May.
“Coupled with mortgage rate increases, higher prices are stifling home sales as more buyers are priced out of the market,” Danielle Hale, chief economist at Realtor.com, said Tuesday after the report was released.
Las Vegas, Seattle and San Francisco reported the biggest annual gains, with all three cities seeing double-digit increases. Yet in 15 of 20 cities, price gains were smaller in July than in the same month a year earlier.
The combination of rising home prices and higher mortgage rates has made homes less affordable, even as a strong job market and some signs of higher pay have lifted demand.
The average 30-year mortgage rate rose to 4.65 per cent last week, according to mortgage giant Freddie Mac. That is up from 3.83 per cent a year ago.
Any rate below 5 per cent is very low by historical standards, but many homeowners locked in rates below 4 per cent in the past five years. That means they would have to accept a higher rate to buy a new home. Plenty of homeowners are choosing to remodel their current homes instead.
Home prices in 12 of the 20 cities in the Case-Shiller index have rebounded from the housing slump and have reached new heights. Four of the cities that are still below their housing bubble peaks are seeing strong price gains: Las Vegas, Miami, Phoenix and Tampa. The other four are seeing modest increases: Washington, D.C., Chicago, New York and Detroit.
The number of homes for sale remains limited, which has sparked bidding wars in many cities. However, the supply crunch may be easing: There were 1.92 million homes for sale at the end of August, up from just 1.87 million a year ago.