Home Prices Are Heating Up After a Long Slide

Comparing the index to year-ago levels, one might expect a buyer’s market with bargains for house hunters abound—but such metrics are largely telling an old story. Prices have been firming up in recent months as houses have remained in relatively short supply, and year-over-year losses could soon turn to gains, more recent data suggest. In fact, this unusual landscape has landed housing inflation back on the Federal Reserve’s radar.

While prices were lower than year-ago levels, home prices continued to gain on a seasonally-adjusted month-over-month basis—a sign of recent strength in the housing market. The index gained a seasonally-adjusted 1% in May from April, more than the 0.85% gain expected by FactSet consensus estimates and stronger than April’s gain of 0.9%.

The recent strength in month-over-month numbers follows a string of declines in late 2022 as quickly-rising rates sent the housing market into what some economists described as a recession. Home prices in the 20-city index began to fall from month-prior levels last year as the housing market corrected—a relative rarity for the seasonally-adjusted data. They began to increase again earlier this year.

National numbers followed a similar pattern: prices were 0.5% lower than year-ago levels, but gained a seasonally-adjusted 0.7% from April.

Home prices are closing in on their prior peak in June of last year, S&P Dow Jones Indices managing director Craig Lazzara said in a statement. While high mortgage rates or economic weakness could curtail home price growth in the months that come, “the breadth and strength of May’s report are consistent with an optimistic view of future months,” he said.

Home prices perked up from the month prior almost across the board: After seasonal adjustment, prices rose in 19 of the 20 metropolitan areas tracked by the indices, with Phoenix being the exception. The greatest monthly gains were seen in New York, Cleveland, and Detroit, where prices increased a seasonally-adjusted 1.8%, 1.7%, and 1.6% in May from April.

Home prices in half of the markets tracked by Case-Shiller were higher than year-ago levels in May, with Chicago, Cleveland, and New York prices leading the pack, Tuesday’s data show. Home prices in these cities were 4.6%, 3.9%, and 3.5% higher than year-ago levels, respectively. Prices were lowest compared to last year in Las Vegas, San Francisco, and Seattle, with indices for these cities down 7.8%, 11.0%, and 11.3%.

Measures of home prices that are more recent, though less comprehensive, than the Case-Shiller index also suggest that home prices nationally are closing in on their previous highs. The median existing home in June sold for $410,200, the National Association of Realtors said last week—the second-highest median sale price on record, with the exception of the same month in 2022. 

Home prices could be headed to new highs nationally, weekly
Redfin
data suggests. The brokerage’s gauge of the median home sale price, calculated on a rolling four-week basis, has risen above year-ago levels for two straight weeks. If the trend holds, monthly measures of home sale prices could rise above year-ago levels soon. 

The housing market’s relative strength could be an issue for the Federal Reserve, Barron’s previously reported. Home prices don’t directly factor into measures of inflation, but do put upward pressure on comparable rents. Shelter inflation has reliably been one of the greatest contributors to cost increases measured by the Consumer Price Index, an inflation gauge. 

The housing landscape was a topic of discussion during the Federal Open Market Committee’s June meeting. “A few participants pointed to upside risks to the outlook for housing services inflation associated with near-record low inventories of homes for sale, solid housing demand, and less-than-expected deceleration recently in measures of rents for leases signed by new tenants,” according to the meeting’s minutes.

Write to Shaina Mishkin at [email protected]