Home price growth persisted at end of 2023 despite decade-high mortgage rates
Home prices surged 5.1% in November from a year earlier, compounding buyers' affordability woes.
Home prices grew again in November even as mortgage rates rose, and homebuyers continued to face prohibitively high costs that experts say could continue for a while.
The S&P CoreLogic Case-Shiller National Home Price Index rose 5.1% over the last 12 months in November on a seasonally adjusted basis. The increase solidified the 2023 housing market as one of continuing growth, underscoring the affordability issues buyers face.
The pressure of limited housing supply pushed up home prices despite mortgage rates reaching some of the highest levels in two decades in November. While interest rates are poised to fall in 2024, experts believe that pent-up demand will only accelerate price growth, and it could take years for the market to moderate.
"With mortgage rates now lower and spring home-buying demand already lurking, home prices will continue to rise, especially considering the outsized pent-up demand for homes coming from young buyers, those who have been waiting for lower rates, and huge influx of immigrants over the last couple of years," Selma Hepp, chief economist at CoreLogic, said.
Read more: Mortgage rates below 7% — is this a good time to buy a house?
The 20-city index — tracking home prices in the 20 largest US metros — rose 0.2% month over month in November and 5.4% after seasonal adjustment.
Detroit and San Diego reported the highest year-over-year gain among the largest US cities in November at 8.2% and 8%, respectively.
November's affordability index
Homes were 7.5% less affordable in November on a year-over-year basis, according to the National Association of Realtors' (NAR) affordability measurement. The index — measuring the likelihood that an average-income family can qualify for a loan on an average house in the region — dropped to 94.2 in November from 101.8 just 12 months earlier. (A score of 100 means that a family has just enough to afford a home in the area. Anything below that indicates straining affordability.)
Read more: First-time home buyer in 2024: What you need to know
November’s index measurement was one of the harshest over the last 12 months because it was paired with a median home price of $392,100 and average mortgage rate of 7.52%.
Monthly payments increased $205, or just over 10%, to $2,198 in November from $1,993 a year ago, according to NAR’s data. Of the four regions in the US, the West had the highest monthly mortgage payment at $3,466, followed by the Northeast at $2,435, the South at $2,008, and finally the Midwest at $1,586.
November's elevated mortgage rates contributed greatly to the affordability challenges in the US. The average 30-year rate reached as high as 7.76% in the beginning of the month and dropped down to 7.22% five weeks later. The last time rates surpassed the 7.70% mark was 23 years ago.
Economists and housing experts, though, are forecasting rates dropping to a new range between the high 5% to low 6% range in 2024, which will directly lower home borrowing costs. However, even with lower rates it could take some time before homebuyers notice a difference.
"The decline in interest rates will help [with affordability] but it's going to be gradual," Doug Duncan, chief economist at Fannie Mae, told Yahoo Finance.
While home prices may not come down anytime soon, data by CoreLogic HPI Forecast predicted that the growth will decelerate over the next year. Prices will increase by 2.5% from November 2023 to November 2024, CoreLogic predicted. The predicted gain is less than half of last year’s growth of 5.2%.
"It’s not a decline," Duncan said, "but I would characterize it as a slow growth year."
Rebecca Chen is a reporter for Yahoo Finance and previously worked as an investment tax certified public accountant (CPA).
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