Home prices in the United States continue to surge, defying the impact of increased mortgage rates. According to the S&P CoreLogic Case-Shiller national home price index, home prices jumped 6.4% year over year in February, marking the fastest rate of price growth since November 2022. The 10-city composite rose by 8%, while the 20-city composite saw an annual gain of 7.3%.
Brian Luke, head of commodities, real and digital assets at S&P Dow Jones Indices, highlighted that U.S. home prices are at or near all-time highs following last year’s decline. He also mentioned that all cities reported increases in annual prices for the third consecutive month, with San Diego, Los Angeles, Washington, D.C., and New York currently at all-time highs. San Diego saw the biggest gain among the 20 cities in the index, with prices up 11.4% from February of 2023.
Interestingly, the Northeast region, which includes Boston, New York, and Washington, D.C., has emerged as the best performing market over the last half year. This may be attributed to the return to office, which has favored larger metropolitan markets in the Northeast. Luke also noted that this is the second time home prices have pushed higher in the face of economic uncertainty since the peak in prices in 2022.
The surge in home prices comes despite the increase in mortgage rates. Mortgage rates have risen nearly a full percentage point since December when they hit their recent lows. Furthermore, expectations of significant rate cuts by the Federal Reserve have diminished due to persistent inflation. This suggests that other factors, such as strong demand and tight supply, are driving the continued increase in home values.
The housing market’s resilience amid economic uncertainty is notable. The first decline in home prices followed the start of the Federal Reserve’s hiking cycle, while the second decline followed the peak in average mortgage rates in October. However, buyers were likely motivated to enter the market in December due to the expectation of lower interest rates and the Federal Reserve’s potential action.
Overall, the current data indicates that the U.S. housing market remains robust despite the challenges posed by increased mortgage rates. Strong demand and limited supply continue to drive home prices higher, with some cities reaching all-time highs. While the Northeast region is currently outperforming smaller and sunnier markets, the return to office may be contributing to the outperformance of larger metropolitan markets. The housing market’s ability to withstand economic uncertainty and inflationary pressures is a positive sign for the industry and potential homeowners.
