Rising Mortgage Rates Will Weigh on House Price Growth This Year

• House prices rose 1.1% in November from the prior month, and were up 18.8% from one year earlier, according to the S&P CoreLogic Case-Shiller U.S. national home price index.
• The S&P CoreLogic Case-Shiller 20-City home price index rose 1.2% in November and was up 18.3% from a year earlier.
• Higher mortgage rates, as the Federal Reserve wraps up its asset purchases and starts to raise the federal funds rate target, will be a weight on house price growth this year.
  

The not seasonally adjusted S&P CoreLogic Case-Shiller U.S. national home index rose 18.8% in November from one year earlier, following the downwardly revised 19.0% growth in October. This marks the third straight month of decelerating house price growth. House prices are now 48.3% higher than the 2006 peak before the Great Recession started. The S&P CoreLogic Case-Shiller 20-City index rose 1.2% in November from the prior month following an upwardly revised 1.0% growth in October; prices were up in November from the prior month in all 20 cities. The strongest gains from the prior month were in Seattle (2.1%), Miami (2.0%), and Tampa (2.0%).

House prices were 18.3% higher on a year-ago basis in 20 U.S. cities, following the upwardly revised 18.5% growth in the previous month. Phoenix (32.2%), Tampa (29.0%), and Miami (26.6%) reported the strongest year-over-year gains among the 20 cities in November. Phoenix led all 20 cities for the 30th straight month. Chicago (11.6%), Minneapolis (11.2%), and Washington DC (11.1%) had the weakest gains.

House prices have grown at strong but decelerating rates since September. Despite the deceleration in house price growth, November’s increase marks the sixth-highest reading on record. Tight supply will continue to drive house prices this year; longstanding inventory challenges have been worsened by labor shortages and supply-chain problems for building materials. However, demand has remained resilient. The labor market is improving, income growth is solid, and households amassed over $2 trillion in excess saving from 2020 and early 2021. Mortgage rates are near two-year highs but are still very low by historical standards. Higher mortgage rates, as the Fed wraps up its asset purchases, will be a weight on house price growth this year. PNC forecasts slowing house price growth in 2022.

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