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Home prices in the U.S. have hit a new all-time high, despite higher mortgage rates that have discouraged many buyers.
Nationally, home prices rose 6.5% on an annual basis in March, according to the S&P CoreLogic Case-Shiller Home Price Index released on Tuesday. On a monthly basis, the index rose 0.3% from February after seasonal adjustment.
“This month’s report boasts another all-time high,” Brian D. Luke, head of Commodities, Real & Digital Assets at S&P Dow Jones Indices, notes in his analysis. “We’ve witnessed records repeatedly break in both stock and housing markets over the past year.”
The Case-Schiller national index has reached new highs in six of the past 12 months, Luke notes. During that time, the S&P 500 benchmark stock index has hit fresh all-time highs in 35 trading sessions.
Gains for the two major asset classes have boosted household wealth, which hit a new record high on an aggregate basis in the first quarter of 2024. But higher home prices have also frustrated prospective homebuyers, many of whom believe the dream of homeownership is slipping out of reach.
Where home prices are rising the fastest
Of the 20 metro areas tracked by the index, San Diego once again posted the largest annual gain in home prices, which rose 11.1% there over the past year.
San Diego was closely followed by New York City (9.2%), Cleveland (8.8%), and Los Angeles (8.8%).
New York City and Los Angeles, the two largest U.S. cities, “have shown significant recovery” since the COVID-19 pandemic, keeping pace with the composite index tracking the 20 largest metros, says Luke.
San Diego once again posted the largest annual gain in home prices
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Meanwhile, San Francisco and Seattle are still trailing previous highs, currently 9.7% and 8.2% lower than in May 2022, respectively, he adds.
Regionally, the Northeast saw the fastest home price increases in the nation with an 8.3% annual gain, according to Luke. Meanwhile, Sun Belt cities such as Tampa, Phoenix, and Dallas, which saw surging home prices in 2020 and 2021, are now growing at a slower pace.
“COVID was a boon for Sun Belt markets, but the bigger gains the last couple of years have been the northern metro cities,” observes Luke.
Of the 20 metros tracked by the index, Denver and Portland, OR, saw the smallest annual gains, with home prices there growing 2.1% and 2.2%, respectively.
“The Midwest and Northeast continue to be popular markets with homebuyers as prices keep climbing annually in the regions,” says Realtor.com senior economist Ralph Mclaughlin. “Both the April Hottest Housing Markets and the April Rental Report highlighted this trend as well. Southern markets saw slower price growth as relatively abundant new and existing inventory is helping relieve price pressure in the region.”
Where will home prices go from here?
Thomas Ryan, North America economist at Capital Economics, writes in a note that the increase in home prices observed in March “suggests that competition among buyers for the limited number of second-hand homes on the market remains strong.
“We expect that to continue for the rest of the year,” says Ryan, who is projecting annual home price gains of 3% in 2025 and 2.5% in 2026. “Although we expect mortgage rates to drift lower in the next few years, we also expect inventory to gradually normalize, which should help cool the market.”
In a positive development for potential homebuyers, affordable inventory priced between $200,000 and $350,000 jumped 41% in April from a year ago, according to Realtor.com data.
“Though inventory is still tight, seller activity continued to pick up into the early spring, climbing 30.4% year over year in April, in part due to a 12.2% increase in new listings in the month,” says Mclaughlin. “While this is certainly welcome news to inventory-constrained homebuyers, recent mortgage rate increases along with inventory sitting at well below pre-pandemic levels is bringing yet another challenging season for those looking to buy.”