Home prices in August hinted at possible cooling in the market, S&P Case-Shiller says

Sign posted at Hamilton Cottages, Novato, California on September 24, 2020.
There are signs that the housing market is cooling down, with price growth slowing in an otherwise hot sector.

According to the S&P CoreLogic Case-Shiller Indicces, prices rose 19.8% in August year-over-year. This was the same rate as August 2017. This is the first time that the annual gain hasn’t increased since early 2020.

The annual composite 10-city increase was 18.6%, compared to 19.2% in July. The composite 20-city rose 19.7% year over year, compared to 20% the month before. All cities are experiencing record prices.

Craig Lazzara (managing director, global head of index strategy at S&P DJI), stated that "we have previously suggested the strength in U.S. residential market is being driven partly by a reaction to Covid pandemic as potential buyers move out of urban apartments to suburb homes." "August data suggests that although the housing market is still strong, it may be slowing down," said Craig Lazzara, managing director and global head of index investment strategy at S&P DJI.

The highest year-over-2018 gains among all 20 cities was in Tampa, San Diego and Phoenix. With a 33.3% increase in price year-over-year, Phoenix was first followed by San Diego (26.2%) and Tampa (25.9%).

Eighteen of the 20 cities experienced higher prices in the year ended August 2021 than the year ended July 2021.

The drop in mortgage rates between July and August was partly responsible for price gains. In July, the average interest rate on the 30-year fixed loan was below 3% and remained there until mid September. According to Mortgage News Daily, it has been steadily rising to 3.25%. In the next few months, higher interest rates may help to cool down home prices.

However, home prices are unlikely to fall significantly as both investor and homebuyer demand remain high. There is still a lot of inventory available, particularly at the lower end. Although some new supply was seen over the summer it is still falling.

CoreLogic deputy chief economist Selma Hepp stated that "persistently strong buyer demand among traditional homebuyers was amplified this summer by an increase of demand from investors." While strong home price appreciation rates are reducing the pool of buyers, especially first-time buyers; the depth and demand imbalance, and robust demand from higher-income earners will continue pushing prices higher.