Dive Brief:

• Home prices fell in August for the second straight month, declining 1.1% compared with July as rising mortgage rates discouraged potential buyers and prompted sellers to stay on the sidelines.
• On an annual basis, prices in August increased 13.1% on average across 20 U.S. cities compared with a 16% gain in July, according to the S&P CoreLogic Case-Shiller Index.
• “As the Federal Reserve moves interest rates higher, mortgage financing becomes more expensive, and housing becomes less affordable,” Craig J. Lazzara, Managing Director at S&P DJ said in a statement. “Given the continuing prospects for a challenging macroeconomic environment, home prices may well continue to decelerate.”

Dive Insight:

The red-hot housing market, a key economic indicator, has cooled as surging mortgage rates shrink the pool of willing buyers and many sellers await a return to the price boom that preceded the Federal Reserve's most aggressive pullback in borrowing costs since the 1980s.

The Case-Shiller Index shows that while home prices remain high on a year-over-year basis, gains have begun to slow. Prices across all nine U.S. census divisions rose 13% in August compared with August 2021, according to the Index, down from a 15.6% gain in July 2022 and the biggest deceleration in the index’s history.

Miami, Tampa and Charlotte saw the highest annual gains for the month, with prices surging 28.6% year-over-year in Miami while Tampa followed close behind with a 28% bump. Charlotte, meanwhile, logged a 21.3% surge in year-over-year home prices.  

Cities on the West Coast reported cooling demand, however, with San Francisco, Seattle and San Diego showing the sharpest declines. San Francisco saw a 4.3% dip in prices, according to the index, while home prices sagged 3.8% in Seattle and 2.8% in San Diego.

Mortgage rates have surged. The 30-year fixed rate loan is now more than 3 percentage points higher than it was a year ago, nearly reaching 7%, according to data released Oct. 19 from Mortgage Bankers Association’s (MBA) Weekly Mortgage Application Survey.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances — those sitting at $647,200 or below — inched up to 6.94% from 6.81% for the week ending Oct. 14, according to the survey.

Rising rates have also pushed down mortgage applications during the past four months to the lowest level since 1997, MBA Vice President and Deputy Chief Economist Joel Kan said in a statement. Meanwhile, mortgage rates have hit the highest level since 2002.

“The speed and level to which rates have climbed this year have greatly reduced refinance activity and exacerbated existing affordability challenges in the purchase market,” he said.