Demand Will Cool as Borrowing Costs Increase

• The S&P CoreLogic Case-Shiller 20-City home price index rose 20.2% in February, up from 19.0% in January.
• The S&P CoreLogic Case-Shiller National Composite Index recorded a 19.8% gain in February, up from 19.1% in January.
• Demand will cool as mortgage rates rise this year, leading to slower house price growth.
  

House price appreciation in February, as measured by the S&P CoreLogic Case-Shiller 20-City Composite Index accelerated to 20.2% from 19.0% in January. The S&P CoreLogic Case-Shiller National Composite Index recorded a 19.8% gain in February from a year ago. This was the third-highest reading on record. House prices, as measured by the National Composite Index are now an astounding 57% higher than the 2006 peak before the Great Recession started. Prices were up in February from the prior month in all 20 cities. The strongest gains from the prior month were in San Diego (3.6%), Seattle (3.5%) and Los Angeles (3.2%). The weakest gains from the prior month were in Cleveland (1.3%), New York (1.2%) and Minneapolis (1.2%). 

Phoenix (32.9%), Tampa (32.6%) and Miami (29.7%) reported the strongest year-over-year gains again among the 20 cities in January. Phoenix led all cities for the thirty-third consecutive month. New York (13.0%), Minneapolis (12.0%) and Washington DC (11.9%) had the weakest gains. 

House prices continued their climb in February owing to resilient demand and constrained inventories. However, house price growth will slow this year as mortgage rates increase and inventories improve. More recent data suggest that housing demand is slowing.

The Mortgage Bankers Association (MBA) Market Index, which tracks mortgage applications, fell 5% in the week ended April 15, pushing the index to the lowest level since early 2019. This was the sixth-straight week of reduced mortgage applications as mortgage rates have increased to new decade highs. The housing market remains undersupplied, and it will be a sellers’ market for some time, but demand should soften with rising mortgage rates, reducing the demand-supply imbalance.

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