As Rising Mortgage Rates Weigh on Demand
- The S&P CoreLogic Case-Shiller National Composite Index recorded a 15.8% gain in July from a year ago, down slightly from 18.1% in June.
- The S&P CoreLogic Case-Shiller 20-City home price index rose 16.1% in July from a year ago, down from 18.7% in June.
- Higher mortgage rates and deteriorating affordability will continue to weigh on housing demand.
Annual house price appreciation in July, as measured by the S&P CoreLogic Case-Shiller National Composite Index decelerated to 15.8% from 18.1% in June. The S&P CoreLogic Case-Shiller 20-City Index recorded a 16.1% gain in July versus July 2021, down from 18.7% in June. The national index declined 0.2% (after seasonal adjustments) in July from June, following a 0.3% increase in June. On a month-over-month basis, the 20-City index fell 0.4% (after seasonal adjustments) in July, following a 0.2% increase in June. The sharpest monthly declines from the prior month were in San Francisco (3.6%), Seattle (2.5%), and San Diego (2.0%).
Eighteen of the 20 cities reported double-digit annual price increases. Tampa (31.8%), Miami (31.7%), and Dallas (24.7%) reported the highest annual gains while San Francisco (10.8%), Washington DC (9.4%), and Minneapolis (9.1%) reported the weakest annual gains.
The housing market slowdown continued in July as rising mortgage rates and deteriorating affordability weighed on demand. The average 30-year fixed mortgage rate has risen sharply in 2022, increasing from 3.3% in January to 6.6% last week. Mortgage rates are set to rise further in 2022 and 2023 as the Fed continues its unwavering fight against stubborn inflation. But limited supply will remain a challenge in the housing market as rising mortgage rates will discourage homeowners who locked in low mortgage rates from selling. PNC Economics expects a deceleration in national house price growth in 2022 and a modest decline in prices in 2023. Low inventory levels were key drivers of house price growth in recent years, but demand destruction will likely drive the decline in house prices next year.
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