Despite the highest mortgage rates in decades, home prices are rising due to a continued shortage of housing on the market.
The S&P CoreLogic Case-Shiller 20-City Price Index rose 0.2% in December, marking the 11th consecutive month of increases in home prices. Compared to the previous year, house prices increased by 6.1%.
Most homeowners who take out a mortgage pay interest rates that are much lower than those currently offered by financial institutions. As a result, they are reluctant to sell their home and take out a loan at a higher interest rate for a new home. This is a drag on home sales, but it is also pushing up home prices and construction.
The 20-City Index is the most closely tracked index of U.S. home prices. Because it tracks repeat sales of homes, it is not distorted by the mix of homes sold in a given month. This includes sales in city centers as well as metropolitan areas around his 20 largest cities in the United States.
The Case-Shiller index is a three-month average, so December numbers include November and October. These numbers also include transactions closed through August 2023, since home sales are completed 45 to 60 days after closing.
The national index, a broader measure of home prices, also rose 0.2%, up 5.5% over the past year. The 10-city index, which focuses on large metropolitan areas, also rose 0.2% in the month and 7% over the past 12 months.
All three indexes reached record highs.
House prices rose every month in 2023 except for January, when they fell. This was the smallest monthly increase since that decline.
Housing is typically considered one of the most sensitive parts of the economy to changes in interest rates. But the impact of the Fed’s interest rate hikes was much smaller than many economists expected because so many homeowners were locked into low and fixed interest rates during and before the pandemic. It’s unusual for home prices to rise so consistently and quickly while interest rates are rising.
December’s numbers were in line with Wall Street analysts’ expectations.
