The Chicago Journal

Increasing mortgage rates influence US home prices

Home prices in the US rose steadily in July, but the current market is showing signs of slowing.

The movement in the market is due to rising mortgage rates, which marginalize more potential buyers.

Home prices rose 15.8% year-on-year in July, according to the US National S&P CoreLogic Case-Shiller Home Price Index.

The jump is less than the 18.1% growth in June.

However, the 2.3% gap between the two months makes it the largest decline in the history of the index.

Lower house prices

On a monthly basis, prices have fallen 0.2% since June, the first monthly decline for the national index since February 2012.

Craig J. Lazzara, Head of S&P Dow Jones Indices, commented on the situation, saying:

“Although US housing prices remain substantially above their year-ago levels, July’s report reflects a forceful deceleration.”

Twenty cities recorded lower price increases in July compared to a year ago.

Tampa was able to register the largest gain, with house prices rising 31.8% in July from a year earlier.

Miami follows with a 31.7% increase and Dallas with a 24.7% increase.

“As the Federal Reserve continues to move interest rates upward, mortgage financing has become more expensive, a process that continues to this day,” noted Lazarra.

“Given the prospects for a more challenging macroeconomic environment, home prices may well continue to decelerate.”

A similar move in house prices in July was seen in a report from the Federal Housing Finance Agency on Tuesday.

The FHFA House Price Index indicated that house prices rose 13.9% year-on-year in July.

However, they decreased by 0.6% compared to the previous month.

According to the agency, this is the first monthly decline in house prices since May 2020.

How mortgage rates are affecting demand

Recent house price reports show the chilling effect of rising mortgage rates.

Mortgage rates doubled year after year in July.

Interest rates continued to rise to nearly 6% in mid-June, and fears of a recession made rates even more volatile.

The Federal Reserve stepped up its rate hikes to curb inflation, and mortgage rates have risen accordingly.

Although the Fed does not directly determine the interest rates that borrowers pay on mortgages, its actions affect them.

Mortgage rates generally follow 10-year US Treasury bond yields.

Investors often sell government bonds on the basis of interest rate increases, which causes interest rates to rise and mortgage rates to rise.

As potential homebuyers followed the rise in interest rates, the intimidation began.

According to Steve Reich, chief operations officer of Finance of America Mortgage, home valuations also continued to decline after the peak in April.

“The gradual slowdown can be attributed to higher interest rates, which has tempered what many homebuyers can afford and, in turn, has softened home sales,” said Reich.

He also noted that home prices are beginning to moderate in some markets, especially those with a large influx of buyers following an outside operation during the pandemic.

George Ratiu, senior economist and chief of economic research for, said:

“The combination of still-tight inventory in most markets and buyers trying to lock in a fixed monthly payments before rates rose even higher ensured that prices continued advancing.”

“However, the upward momentum has lost steam, and it is clear that the market peak is now firmly behind us.”

Ratiu has also said that a postponement of price increases seems to offer buyers better opportunities in the coming months.

“The shares of homes with price cuts reached about 20% in August, the same level we saw in 2017 when real estate markets were on much more balanced footing,” he added.

“As mortgage rates are expected to keep rising, and current prices become even less sustainable for most buyers’ budgets, price cuts are likely to continue expanding.”

Ratiu has also noted that the current market is different from three weeks ago since home owners plan to sell.

Because the average monthly mortgage payment has increased by hundreds of dollars compared to last year due to the higher interest rates, the number of qualified buyers has decreased.

“Sellers who have a firm grasp of local market conditions and price accordingly from the get-go will be more likely to grab buyers’ attention and ensure a successful transaction,” said Ratiu.


US home price reports show the cooling effect of rising mortgage rates

Opinions expressed by The Chicago Journal contributors are their own.