While the housing market began this year with strong activity, summer sales have been disappointing as inventory challenges continue and mortgage rates escalate. According to recent data, sales of existing homes in June were about 21% lower than in 2019 and approximately 20% below the 2022 sales figures.
But economists say comparisons with the second half of 2022 will become increasingly irrelevant, given the halt in housing activity caused by the surge in mortgage rates that began in the summer of 2022.
“In May, the CoreLogic S&P Case-Shiller Index fell by 0.5% year over year, indicating the second month of year-over-year losses. However, while the annual decline reflects price drops that occurred in 2022, recent above-average price gains indicate an inflection ahead," Chief Economist Selma Hepp said. "And while home sales activity still continues to tell a tale of two markets: one of the West, which is constrained by a lack of existing inventory, and the other of the Southeast and South, where the availability of new homes for sale is creating sales opportunities; home prices are not necessarily following the trend anymore."
Despite these challenges, the CoreLogic S&P Case-Shiller Index posted strong month-over-month gains for the fourth consecutive month, rising by 1.2% in May. However, this is a slight decrease from the 1.5% increase recorded in April. Home prices are now 4% higher than in February this year, although they remain 1% below the 2022 peak.
The 10- and 20-city composite indexes saw declines for the third consecutive month in May, down by 1% and 1.7%, respectively. The 20-city index continues to reflect larger declines in home prices over the last year as affordability challenges hit smaller metro areas more significantly. In contrast, both the 10-city index and 20-city indexes showed growth of 1.5% over the previous month, with a cumulative 5% increase since the beginning of 2023.
New York and Chicago, included in the 10-city index, have seen relatively stronger housing market performance since mid-2022, driven by the return to cities and offices. When compared with their 2006 peak, the 10-city composite index is now 44% higher, and the 20-city composite is up by 51%. Adjusted for inflation, the 10-city index has returned to its 2006 level, while the 20-city index has risen by 5% compared to its 2006 high point.
Amongst the individual markets, Chicago, Cleveland, and New York saw the most significant annual appreciation, rising by 4.6%, 3.9%, and 3.5% year-over-year. Despite the recent surge in prices, the high-tier housing market continued to show relative weakness, with a 2.9% year-over-year decline.
Looking forward, the remainder of the year will continue to be influenced by mortgage rates and the availability of inventory. Neither of these factors is expected to provide any respite soon, implying that 2023 homebuying activity may be the slowest in about a decade. However, robust demographics, equity-rich baby boomers, and healthy job markets are expected to ensure housing demand continues to outpace inventory availability, keeping home prices on an upward trend.
