Housing: ‘We’re at a tipping point’ for home prices, economist says

Higher mortgage rates are finally showing the first signs of a slowdown in the housing market.
According to the latest Case-Shiller report from S&P CoreLogic, US home values ​​rose 20.4% in April, compared to a revised 20.6% increase in the previous month. While April saw the biggest uptick in home price growth since the series began, the pace slowed for the first time since November 2021.
The slight deceleration came as mortgage rates topped 5% for the first time in the last week of April, an early sign of how quickly the once sweltering housing market has calmed down.
While the rate of home price growth slowed marginally, it remained twice as high as before the pandemic.
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That slowdown suggests "we're at an inflection point in terms of home price growth," Selma Hepp, deputy chief economist at CoreLogic, told Yahoo Finance Live (video above). "We expect the slowdown in home prices to become even more severe going forward, with home prices falling significantly by this time next year."
"Unsustainable" pace of growth
Real estate prices have risen at an unprecedented rate.
Nationwide, the average rose to a record high in April, marking the 123rd straight month of gains. The upside momentum is likely to be fueled by eager buyers trying to lock in a cheap mortgage rate before further hikes.
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However, according to CoreLogic, higher mortgage rates are expected to slow buyer demand in the coming months. The lack of inventory for sale and rising borrowing costs will price many potential buyers out.
A home is listed for sale in Chicago on April 26, 2022. (Photo by Scott Olson/Getty Images)
The housing market has already seen fewer bidding wars as buyers feel the pinch of inflation, rising interest rates and sky-high house prices. According to Hepp, this should cause annual house price growth to cool to 5.6% by April 2023.
"The pace of growth of over 20 percent is unsustainable and has made many people uneasy when they think back to what happened last time before the Great Recession, when house prices rose at a similar pace to what they are today," Hepp said. “The slowdown in house price growth is certainly a welcome change for the market. In theory, it should bring more balance and healthier housing market conditions to buyers and sellers.”
Cities with the highest and lowest demand
All cities saw double-digit increases in house prices in April, according to the Case-Shiller report.
The index for the 10 and 20 largest cities posted annual gains of 19.7% and 21.2%, respectively. Home price growth was particularly strong in smaller markets as long-distance workers with larger budgets traded big cities for more affordable areas near the US Southeast.
The report found that the cities with the largest price growth were Tampa, Miami, and Phoenix, with compound annual growth rates of 35.8%, 33.3%, and 31.3%, respectively.
"We've seen a lot of people relocating because of the availability of work-from-home policies," Hepp said. "I think the higher house price growth will continue in the South."
A real estate agent comes to the door as she lists a home for sale in Silver Spring, Maryland. REUTERS/Jonathan Ernst
On the other hand, once-popular cities like Seattle, San Francisco, and San Diego reported the largest declines in price growth compared to March.
Minneapolis and Washington, for example, had the slowest annual gains of between 12.3% and 13%. Nonetheless, these cities posted double-digit growth rates for the 17th straight month.
According to CoreLogic, the slowdown in these areas is likely due to a build-up of active inventory and fewer buyers rushing to make offers, leading to an increase in the number of homes that have listed discounts to attract price-conscious buyers.
"Many homes in the Northeast are now becoming relatively more affordable than before because demand has been subdued," Hepp said.
Gabriella is a personal finance reporter at Yahoo Money. Follow her on Twitter @__gabriellacruz.
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