Mortgage interest rates didn't begin
their recent surge until the start of September, but home prices were already
feeling pressure, as fewer people could afford what was for sale.
Nationally, prices rose 5.8 percent
in August compared with August 2017, according to the S&P CoreLogic
Case-Shiller home prices index. That is less than the 6 percent annual gain in
July.
The index's 10-City Composite rose
5.1 percent annually, down from 5.5 percent in the previous month. The 20-City
Composite posted a 5.5 percent year-over-year gain, down from 5.9 percent in
the previous month.
"Following reports that home
sales are flat to down, price gains are beginning to moderate," David M.
Blitzer, managing director and chairman of the index committee at S&P Dow
Jones Indices, said in a release. "Rising prices may be pricing some
potential home buyers out of the market, especially when combined with mortgage
rates approaching 5 percent for 30-year fixed rate loans."
The jump in mortgage interest rates
began at the start of September, but home sales were already slowing, as prices
were just too high for some buyers, especially entry-level buyers. Home prices
have been pushed higher over the past few years due to a critical shortage of
homes for sale. Inventory, however, finally began to rise in August, and
continues to gain this fall. Not only are there more listings, but fewer sales,
so homes are sitting on the market longer.
The market is beginning to balance
more between supply and demand, following one of the strongest seller's markets
in decades. There is little concern, however, that prices will actually fall,
only that the gains will fall back to more normal, historical levels of 3
percent to 4 percent annually.
"There are no signs that the
current weakness will become a repeat of the crisis, however. In 2006, when
home prices peaked and then tumbled, mortgage default rates bottomed out and
started a three year surge," said Blitzer. "Today, the mortgage
default rates reported by the S&P/Experian Consumer Credit Default Indices
are stable. Without a collapse in housing finance like the one seen 12 years
ago, a crash in home prices is unlikely."
Even as the gains shrink, some local
markets continue to show price strength. Las Vegas, San Francisco and Seattle
saw the biggest annual gains among the 20-city index.
In August, Las Vegas home prices
jumped 13.9 percent year-over-year, followed by San Francisco with a 10.6
percent increase and Seattle with a 9.6 percent gain. Four of the 20 cities
reported greater price increases in the year ending August 2018 versus the year
ending July 2018.
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