U.S. home prices grew by 0.9% from February to March, according to First American Financial Corp.’s national house price index released Tuesday. This growth trajectory follows a revised upward figure of 1% price growth from January to February, and prices are now 52% higher than pre-pandemic levels of February 2020.
“Persistent inflation has diminished any optimism that the Federal Reserve may start to cut rates in June, meaning mortgage rates seem more and more likely to remain ‘higher for longer’ this year,” Mark Fleming, chief economist at First American, said in a statement.
“Many sellers will remain on strike keeping a lid on supply. However, as we saw last fall when mortgage rates peaked, demand may also wane. Even though the supply of homes for sale will remain tight, sagging demand should further slow price appreciation in a ‘higher-for-longer’ mortgage rate environment.”
First American’s analytical lens zooms in at the metropolitan level and segments home prices across three distinct tiers: starter, mid-tier and luxury. The starter tier includes home sale prices in the bottom one-third of the market price distribution. The mid-tier represents prices in the middle third of the market, while the luxury tier represents prices in the top third of the market.
“Starter home price appreciation will continue to face upward pressure in a ‘higher-for-longer’ market,” Fleming said. “Starter homes are the least supplied because it is the market segment most supplied by existing homeowners, who are the most vulnerable to the rate lock-in effect and thus unable or unwilling to list their home for sale to fuel a move-up purchase.”
Fleming noted that starter-tier prices are increasing on a yearly basis by more than 10% in metros like Nassau County, New York; Pittsburgh; Miami; and New York City.
Meanwhile, the metros of Anaheim, California; Miami; San Diego; Pittsburgh; and Cambridge, Massachusetts posted the highest yearly growth in prices, with double-digit growth for many of them.
Looking only at the starter-home segment, the highest year-over-year price increases were observed in Nassau County; New Jersey; PIttsburgh; Miami; New York; and Charlotte.
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U.S. home price gains reached their highest rate in a year in January, according to CoreLogic’s Home Price Index (HPI). But the data provider forecasts yearly growth to begin slowing in the coming months and fall to 2.6% by early 2025.
U.S. annual home price growth rose by 5.8% in January 2024. On a monthly basis, home prices increased by 0.1%. In January, the annual appreciation of detached properties (6%) exceeded that of attached properties (4.9%) by 1.1 percentage points.
“Home prices further increased in late 2023 despite high mortgage rates, which surged to the highest level since the beginning of the millennium,” Selma Hepp, chief economist for CoreLogic, said in a statement.
“But metro areas that have struggled with the impact of higher rates continue to see downward movement on home prices. Generally, pressures from higher mortgage rates tend to occur in markets where the higher cost of homeownership pushes against the affordability ceiling.”
Rhode Island, New Jersey and Connecticut posted the biggest price increases for the year ending in January, with double-digit appreciation rates of 13.2%, 11.6% and 11%, respectively. Among the U.S. cities analyzed, Miami posted the highest year-over-year home price increase at 10.2%, followed by San Diego at 8.5% and Chicago at 7.3%.
Spokane, Washington; the Florida metros of Palm Bay and Ocala; and the Utah metros of Salt Lake City and Ogden posted the highest risks of price declines over the next year, according to CoreLogic’s Market Risk Indicator.