Annual price growth in the increasingly fragile U.S. housing market slipped to single digits in October for the first time in about two years, when mortgage rates topped 7% that month and further stifled demand, showed a pair of closely watched investigations on Tuesday.
The S&P CoreLogic Case Shiller National Home Price Index rose 9.2% in October from 10.7% in September and posted the first single-digit gain since November 2020.
Meanwhile, the Federal Housing Finance Agency, which oversees US mortgage finance entities Fannie Mae and Freddie Mac, said annual house price growth slowed to 9.8% in October from 11.1% in September. , marking the first double-digit gain for this index since September 2020. .
Month-over-month, the S&P Case Shiller index fell for a fourth consecutive month, while the FHFA gauge remained unchanged. “As the Federal Reserve continues to push interest rates higher, mortgage financing continues to be a headwind for home prices,” S&P DJI chief executive Craig Lazzara said in a statement.
The housing market has suffered the most visible effects from the Fed’s aggressive interest rate hikes which aim to rein in high inflation by undermining demand in the economy. This month, the Fed raised rates again by half a percentage point, capping a year that saw its benchmark rate rise from near zero in March to between 4.25% and 4.5% now – the fastest rates have risen since the early 1980s. Fed officials projected rates would rise further in 2023, likely topping 5%.
The 30-year fixed mortgage rate crossed the 7% mark in October for the first time since 2002, doubling more than nine in the space of nine months, cutting the rug to what had been a hot housing market fueled by historically low borrowing costs and a rush to the suburbs during the coronavirus pandemic.
Data last week showed the combined annual sales rates of new and existing homes through November had fallen from 35% since January – among the fastest falls on record – to the slowest since the end of 2011. New single-family housing starts and permit issuance skidded to a two-and-a-half-year low last month as well.
However, economists do not see a repeat of the housing price slump seen during the financial crisis when prices by the S&P Case Shiller measure fell year-over-year for five years from March. 2007 to April 2012. Unlike that time, the supply of housing on the market remains extraordinarily limited and should maintain a floor below housing prices.
Earlier this month, the National Association of Realtors predicted existing home prices — by far the largest chunk of the market — should remain more or less flat in 2023.