Home price gains lag behind inflation, which means homeowners lose out on the investment

A home is the single largest investment for most Americans. Revenues lose ground.

Home prices nationally rose 1.5% in August compared with the same month a year ago, down from the 1.6% annual increase recorded in July, according to the S&P Cotality Case-Shiller U.S. National Home Price Index.

Although housing prices have not yet fallen, they are weakening, rising at a slower pace than the current inflation rate of 3%. This means that housing wealth has eroded in real terms for the fourth month in a row, according to the index.

Home prices in nearly all urban markets highlighted by the index fell month-over-month in August. Only Chicago saw price gains. House prices are seasonal and typically decline at this time of year, but this weakness has been more significant than the usual seasonal patterns.

Much of this is due to high mortgage interest rates, which remained stagnant over the summer, when much of this index was measured. (Indicator is a three-month average). Prices have fallen since then, but not significantly. The average interest rate on a 30-year fixed mortgage started in June at just under 7% and dropped to 6.5% by the end of August, according to Mortgage News Daily. It now stands at 6.19%.

“Mortgage rates remaining above 6.5% continue to weigh on buyer demand, even during what should be the busy summer season,” Nicholas Godek, head of tradable and fixed-income commodities at S&P Dow Jones Indices, wrote in a press release. “The combination of high financing costs and rates that remain near record levels has restricted activity.” Transactions.

Prices in August rose the most in the greater New York area, with a 6.1% year-over-year increase, followed by Chicago at 5.9% and Cleveland at 4.7%. On the other hand, prices in Tampa, Florida, decreased by 3.3% year over year, Phoenix decreased by 1.7%, and Miami decreased by 1.7%.

There was also weakness in the West, with prices in San Francisco down 1.5%, Denver down 0.7%, and San Diego down 0.7%. Seattle also turned very slightly negative.

“Markets that saw the biggest gains in the pandemic era are now seeing the biggest corrections, while affordable metros with stable local economies are holding up better,” Godek said. “This adjustment may eventually lead to a more sustainable market, but for now, homeowners are watching their real equity erode while buyers face the dual challenge of rising prices and rising borrowing costs.”

A separate survey by the Federal Housing Finance Agency, or FHFA, which measures home prices with conforming loans, showed that home prices rose 2.3% in August year over year and 0.4% from July.

“This relative strength on a monthly basis reflects the recent weak trend and shows some stabilization in home prices across the United States after several months of declines on a monthly basis,” Eugenio Aleman, chief economist at Raymond James, said in a statement. “We may see more stability in house price appreciation over the rest of the year as the effects of lower mortgage interest rates support increased housing activity.”