Home prices hit new highs, driven by tighter supply

Home prices hit a record high in May, rising 0.7% nationally compared to April at a seasonally adjusted rate, according to the Black Knight Home Price Index.

Prices, which have risen since January, were 0.1% higher in May than a year earlier.

The sharp jump in mortgage interest rates last year threw cold water on the overheated housing market, but it was short-lived. Even as prices continue to rise, home prices are starting to rise again, and gains are accelerating with each new month.

“There’s no question that the housing market has rebounded from a home price perspective,” said Andy Walden, vice president of project research at Black Knight.

“Although the annual growth rate lagged to 0.1%, May’s exceptionally strong gain of +0.7% m/m would equate to an annual growth rate of 8.9%, indicating that the annual growth rate of house prices will remain at or near 0% for a period Just a short while before it turns higher and heads sharply higher in the coming months,” Walden added.

Prices began to fall last summer, after the average interest rate on a 30-year fixed-rate mortgage more than doubled in just six months. It continued to decline until January, when Jupiter demand returned but faced a severe supply shortage. Perhaps buyers are simply used to higher rates.

“Earlier this year, I shared that I thought mortgage rates of 6% were accepted as the new normal. I think we’re now in an environment where mortgage rates of 7% are now the new normal, and people are accepting of that,” Robert Rifkin, said. CEO of Compass Real Estate last week on CNBC’s “Squawk on the Street.”

By May, just over half of the nation’s 50 largest residential markets, most of them in the Midwest and Northeast, had returned to previous highs or hit new highs.

House prices remain weaker in the West and in many cities considered pandemic “boom towns,” which led to an influx of remote workers to find new homes during the early days of Covid.

But these prices are starting to rise. Homes in San Jose, California, lost 10% of their value last year, but inventory is starting to fall again, and prices there are now reheating. It rose 1.4% in May, the second largest monthly increase of any market on a seasonally adjusted basis. San Diego, Los Angeles, San Francisco and Seattle also saw price growth in May as well.

The only exception is Austin, Texas, one of the major epidemic-prone cities.

“Inventory there continues to rise above pre-pandemic levels, putting downward pressure on prices, which have fallen to -13.8% below the peak, the largest gap of any market. Only eight of the top 50 markets are currently below the 5% 2022 peaks.” Walden said.

Overall, however, the show is down again. New listings are down about 25% from last year, as homeowners with mortgage rates below 4% are reluctant to sell their home and potentially pay a much higher interest rate on another home. Total inventory is now about half of what it was just before the pandemic, which has caused a massive housing boom.

Pre-owned home sales are still much weaker than they were a year ago, but that has less to do with rising costs and more to do with tight supply. The median price of a pre-owned home in May was $396,100, according to the National Association of Realtors. Redfin, a real estate brokerage, reported last week that the average home is now selling just above the list price for the first time in nearly a year.

Bidding wars are clearly making a comeback, even if affordability has taken a hit. As of June 22, with 30-year rates at 6.67%, it required $2,258 a month in principal and interest to make the monthly payment on a 20% median-rate home and a 30-year mortgage, according to Black Knight. This is the highest payment on record, and is slightly higher than the $2,234 requested in October.