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Home prices are beginning to cool

Prices rose 20.4% nationally in April year-over-year, according to the latest S&P CoreLogic Case-Shiller Index

Home price increases slowed just a touch in April, and there’s a strong likelihood that home prices will cool further, a recent report shows.

Prices rose 20.4% nationally in April compared with the same month a year ago, according to the latest S&P CoreLogic Case-Shiller Index report. In March, home prices grew 20.6%.

The 10-city composite annual increase was 19.7%, up from 19.5% in March. The 20-city composite increased by 21.2% annually, up from 21.1% in March. Only nine of the 20 cities saw higher price appreciation in April than they did in March.

“April 2022 showed initial (although inconsistent) signs of a deceleration in the growth rate of U.S. home prices,” Craig Lazzara, managing director at S&P Dow Jones International, said in a statement. “We continue to observe very broad strength in the housing market, as all 20 cities notched double-digit price increases for the 12 months (that) ended in April. April’s price increase ranked in the top quintile of historical experience for every city, and in the top decile for 19 of them.”

Tampa, Florida, Miami and Phoenix again continued to notch the biggest price gains. In Tampa, home prices jumped 35.8% from April 2021. Miami and Phoenix both showed increases north of 30%, according to the index. Southern cities such as Dallas, Charlotte, North Carolina, Miami and Atlanta also saw strong monthly gains.

“With rates continuing their steep ascent and inventory picking up in months since, April is likely the first month of this deceleration as buyers balked at the cost of purchasing a home and pulled out of the market, leading to slower price growth,” said Zillow economist Nicole Bachaud in a statement. “While inventory is improving, there is still plenty of room to go before it reaches its pre-pandemic trend. Still, coupled with relatively strong demand, that will continue to be a driver for sustained high prices even as sales volume is dropping in response to affordability constraints.”

Bachaud continued, saying more buyers are expected to “step to the sidelines” in coming months, “which will help inventory to recover and price growth to slow from its peak, leading the market back to a more balanced stable state in the long run and providing more future opportunities for homeownership for those priced out today.”

Cities with the smallest price appreciation included Minneapolis, Washington, D.C., and Chicago, which were still in the double digits.

The price cooling corresponds with a spike in mortgage rates. The average rate on the 30-year fixed mortgage eclipsed the 5% mark in April, up from roughly 3% in January. Ahead of the most recent Federal Reserve meeting in June, it had crossed 6%.

“We noted last month that mortgage financing has become more expensive as the Federal Reserve ratchets up interest rates, a process that had only just begun when April data were gathered,” Lazzara said in a statement. “A more challenging macroeconomic environment may not support extraordinary home price growth for much longer.”

As previously reported in RealTrends, the rise in mortgage rates is a challenge for real estate agents. For many, their clients have lost significant purchasing power and inventory has not rebounded to pre-pandemic levels.

A report by Redfin found more than 10% of all home sellers in 108 metros dropped their asking price in May, yet another sign that buyers hit their limits and prices will cool.