Home prices continued their slow climb to new record highs in May, even as annual appreciation remained below 1% for the ninth straight month, according to the latest Home Price Index from First American Data & Analytics.
For loan originators, the latest data reinforce the view that the market remains constrained rather than booming. Home values are still rising, but only incrementally, reflecting persistent inventory shortages instead of surging buyer demand. That means affordability challenges remain, while move-up and luxury borrowers may continue to present stronger opportunities than entry-level buyers.
National home prices rose 0.3% from April to May and were up 0.7% from a year earlier. Despite the subdued annual gain, the national price index reached another all-time high.
"National house prices are making history in slow motion," said Mark Fleming, chief economist at First American Data & Analytics. "While annual house price growth remains below 1 percent, the price level reached a new historical peak this month."
Unlike the rapid appreciation seen during the pandemic housing boom, Fleming said today's record prices are being driven by a series of modest monthly gains rather than double-digit annual increases.
Inventory Still Dictates Pricing
First American said the pace of inventory growth has moderated compared to earlier this year and housing supply remains below pre-pandemic levels nationally.
That imbalance is limiting both sharp price increases and meaningful price declines, leaving home values largely stable despite elevated mortgage rates and affordability pressures.
The report also revised April's monthly home price increase higher, from 0.2% to 0.5%.
Luxury Market Continues To Outperform
One of the clearest themes in the report is the growing divide between higher-end and entry-level housing.
"Housing market divergence is not just a regional story—it's also a story of market segments," Fleming said.
According to First American, luxury homes have generally held up better than starter and mid-tier properties. The company attributes that resilience to wealth gains from years of home appreciation and stock market growth, which have strengthened the purchasing power of higher-income buyers.
Those buyers have been better positioned to absorb elevated borrowing costs than first-time purchasers.
Dallas illustrated that trend, with luxury home prices rising 9.2% year over year even as starter-tier home prices rose 3.1%.
Winners And Losers
Among major metropolitan areas, Chicago posted the strongest overall annual home price growth at 6.2%, followed by:
- Pittsburgh (+2.6%)
- Cambridge, Mass. (+1.9%)
- New Brunswick, N.J. (+1.7%)
- Anaheim, Calif. (+1.6%)
The weakest-performing markets were concentrated in parts of the West and Sun Belt:
- Denver (-2.5%)
- Orlando (-2.2%)
- Las Vegas (-2.1%)
- Tampa (-2.0%)
- Oakland (-1.7%)
In the starter-home segment, St. Louis led the nation with an 8.6% annual increase, while Chicago posted gains across all three price tiers, underscoring its broad-based market strength.
The Bottom Line
The latest data suggests the housing market remains in a holding pattern. Price appreciation has slowed dramatically from pandemic-era highs, but limited inventory continues to prevent meaningful declines in home values.
For mortgage professionals, that means affordability remains a headwind for first-time buyers, while borrowers with significant equity or higher incomes are likely to continue driving activity in the months ahead.
