High mortgage rates continue to challenge buyers even as prices cool
US home price growth continued to cool in July, with annual gains dipping below 5% for the third consecutive month.
According to CoreLogic’s Home Price Index, home prices increased by 4.3% year-over-year in July, down from 4.7% in June, signaling a steady decline in price growth as the housing market faces rising mortgage rates and affordability challenges.
On a month-to-month basis, home prices barely shifted, with a 0.01% decrease from June to July. While this marks the 150th consecutive month of annual home price growth, the pace has slowed considerably compared to previous years.
CoreLogic forecast that by August, home prices will only rise 0.2%, and next year’s annual gains are expected to hover around 2.2%.
Selma Hepp, chief economist at CoreLogic, pointed out that much of this sluggishness is due to the pressures of high mortgage interest rates.
“Housing demand continued to buckle under the pressure of high mortgage rates and unaffordable home prices, leading to a considerable slowing of home price gains during the summer,” Hepp said. “July’s prices were essentially flat from the month before, which was notably cooler than the average gain of 0.4% recorded between June and July in years prior to the pandemic and especially during the pandemic.”
The big question now is whether expected interest rate cuts from the Federal Reserve later this year will be enough to lure potential buyers back into the market.
“As buyers remain cautious, sales remain low. However, the highly anticipated rate cuts from the Federal Reserve this fall may help improve consumer purchase sentiment for the housing market,” CoreLogic wrote in its report.
Hepp believes that lower mortgage rates will likely help boost affordability, but the seasonal slowdown in the fall housing market may prevent any major surges in buyer activity.
Read next: Is a supersized Fed rate cut on the way?
Despite the national cooling trend, certain regions continue to experience strong home price growth. Rhode Island saw the highest year-over-year increase in home prices at 10.6%, followed by New Jersey (9.7%) and Connecticut (8.3%). Miami led the large US metro areas, with a 9.1% increase in home prices from July 2023 to July 2024.
However, some markets are at risk of price declines over the next year. CoreLogic’s Market Risk Indicator predicted that Gainesville, Fla., has over a 70% chance of seeing a price drop within the next 12 months, with other areas such as Palm Bay-Melbourne-Titusville, Fla; Atlanta-Sandy Springs-Roswell, GA; Lakeland-Winter Haven, Fla; and Ogden-Clearfield, Utah also at high risk.
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