A home for sale in San Francisco, California, displaying a for sale sign.
Image credit: Justin Sullivan | Getty Images
Home prices in the United States reached a record high in May, with a national increase of 0.7% compared to April’s seasonally adjusted rate, according to the Black Knight Home Price Index.
From January to May, home prices have been on a continuous rise, and in May of this year, they were 0.1% higher compared to the same month last year.
Although last year’s surge in mortgage interest rates momentarily cooled down the overheated housing market, the increase in prices has once again gained momentum.
Andy Walden, the Vice President of Enterprise Research at Black Knight, states, “There is no doubt that the housing market has reignited from a home price perspective.”
He further adds, “May’s exceptionally strong +0.7% month-over-month gain suggests that the annual home price growth rate would remain at or near 0% for only a short time before inflecting and trending sharply higher in the coming months.”
Home prices started declining last summer when the average interest rate on a 30-year fixed-rate mortgage more than doubled in just six months. However, prices began rebounding in January when buyer demand resurfaced amidst tight supply conditions.
Robert Reffkin, the CEO of Compass Real Estate, recently stated on CNBC’s “Squawk on the Street” that “6% mortgage rates were accepted as the new normal.” He further believes that “7% mortgage rates are now the new normal, and people are accepting it.”
By May, more than half of the largest housing markets in the United States, mainly in the Midwest and Northeast regions, had either exceeded their prior price peaks or set new highs.
While home prices remain weaker in the West and cities that experienced a pandemic-driven housing boom, such as San Jose, California, there are signs of recovery. San Jose saw a 1.4% increase in home prices in May, the second-largest month-to-month increase among all markets.
The exception to the trend is Austin, Texas, which had one of the most significant pandemic-driven housing booms. Prices in Austin continue to decline due to high inventory levels.
Overall, housing supply is decreasing once again, with new listings down approximately 25% compared to last year. Homeowners with sub-4% mortgage rates are hesitant to sell their homes and potentially face higher interest rates on new purchases.
The sales of pre-owned homes are still weaker than a year ago, primarily due to limited supply. The median price of a pre-owned home in May was $396,100, according to the National Association of Realtors. Additionally, bidding wars are becoming common, even though affordability is being impacted.
Despite the rising costs, people are willing to pay. In June, with 30-year rates at 6.67%, the monthly payment on a median-priced home with 20% down and a 30-year mortgage reached a record high of $2,258 in principal and interest, according to Black Knight.
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