Home price gains slowed in August. But will it continue?

After years of rising home prices, the gains are beginning to decline. But how long will it last?

Home prices in August rose 1.5% from a year ago, rising at their slowest pace in two years, offering some relief to home hunters facing an unaffordable market. Data from the S&P Cotality Case-Shiller National Home Price Index shows that home price increases are not keeping pace with inflation.

“This represents the weakest annual gain in more than two years and is well below the 3% inflation rate,” said Nicholas Godek, head of tradable and fixed-income commodities at S&P Dow Jones Indices. “For the fourth month in a row, home values ​​have lost ground due to inflation, meaning homeowners are seeing their real wealth fall even as nominal prices rise.”

Prices drop in Tampa, climb in Chicago

Home price growth varies by location. New York, Chicago and Cleveland all showed annual increases of 4.5% or more. Meanwhile, home prices in Tampa, Phoenix and Miami fell after rising during the pandemic.

“Markets that saw the biggest gains in the pandemic era are now seeing the biggest corrections, while more affordable metros with stable local economies are holding up better,” Godek said. “The housing market appears to be finding a new equilibrium after the pandemic boom.”

Affordability in the housing market has been squeezed by a combination of steadily rising home prices and mortgage rates that have been hovering near their highest levels in more than a decade. But increases in home inventory can help sustain it Prices at check.

“Supply conditions have shifted in favor of buyers as price cuts and longer stays in the market become more common,” wrote Ben Ayers, chief economist at Nationwide.

Lower mortgage rates could change everything

However, the decline in home prices in August may not last, thanks to falling mortgage interest rates, which at 6.19% are the lowest in more than a year. While lower mortgage rates provide buyers with better borrowing costs, they may also stimulate more interest from home hunters who can then drive up home prices.

“Lower mortgage rates would boost demand from buyers who have been waiting for a cheaper environment, preventing a sharp decline in home prices,” Ayers wrote.