Home prices kept appreciating in May, according to the latest S&P CoreLogic Case-Shiller Indices report.
Although home prices across the U.S. fell by 0.5% annually in May, on a monthly basis, prices increased by 1.2%, according to the report.
“Home prices in the U.S. began to fall after June 2022, and May’s data bolster the case that the final month of the decline was January 2023,” Craig Lazzara, S&P Dow Jones Indices managing director, said. “Granted, the last four months’ price gains could be truncated by increases in mortgage rates or by general economic weakness. But the breadth and strength of May’s report are consistent with an optimistic view of future months.”
Moreover, buyer competition has also heated up, reflected in an increasing share of homes selling over the asking price, 39% compared to an average of 25% pre-pandemic, according to CoreLogic Chief Economist Selma Hepp.
“As a result, median price premium (ratio of sale price to list price) is back to positive, at 1%, after declining since last September,” Hepp said in a statement.
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Home prices are gaining faster in Midwest
In May, the Midwest unseated the Southeast as the country’s strongest region. The 10-city and 20-city composites saw monthly gains of 1.5%, with homes in the Rust Belt cities of Chicago, Illinois, Cleveland, Ohio, and Detroit, Michigan, posting the most significant gain, according to the report.
It’s a departure from cities in the Sun Belt seeing the most significant increases, according to Lazzara. Since May 2018, the top-ranked cities have been Las Vegas, Phoenix, Tampa and Miami.
“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,” Hepp said. “Price gains have been strongest in Midwest pandemic-laggers, Cleveland, Chicago, Detroit, which are now the hottest housing markets.”
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Lack of housing supply helping prices
The gain in home prices is surprising as previous forecasts had called for the opposite. Still, the limited housing supply has helped support the market, according to Keeping Current Matters Chief Economist George Ratiu.
Although the market remains unaffordable for many, areas with demand are experiencing high levels of competition due to the lack of homes up for sale.
“Real estate analysts and headlines had expected housing markets to slide into a deep recession following last year’s aggressive monetary tightening, coupled with sharp inflation and the attendant surge in mortgage rates,” Ratiu said in a statement. “At the same time, residential real estate markets remain structurally out-of-balance, with demand far outpacing the limited inventory of available homes, the result of more than a decade of under-building.
“As homebuyers, buoyed by a solid job market and rising wages, accept current mortgage rates as the new normal, even a moderate pace of transactions will keep upward pressure on prices during the peak summer season,” Ratiu continued. “We can expect prices to show a typical return to historical patterns as we move into the second half of the year.”
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