After falling for months, home prices are rising again. Here's why.
After falling for seven months, U.S. home prices are rising again as the spring house-hunting season heats up amid a shortage of properties on the market.
Home prices increased 0.7% nationwide in March after growing 2.1% in February, according the S&P CoreLogic Case-Shiller housing index, a barometer of housing prices. The increase surprised economists, who had predicted the index would stay flat. The index is now just 3.6% below its peak in June of last year, according to S&P.
"Two months of increasing prices do not a definitive recovery make, but March's results suggest that the decline in home prices that began in June 2022 may have come to an end," said Craig Lazzara, managing director at S&P DJI, in a statement. "That said, the challenges posed by current mortgage rates and the continuing possibility of economic weakness are likely to remain a headwind for housing prices for at least the next several months."
The jump in home costs in March was widespread, with prices rising in all 20 cities tracked by the index, up from 12 in February.
A separate report released Tuesday by the Federal Housing Finance Agency found that home prices rose 0.6% in March, after rising 0.7% in February.
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The figures highlight the ongoing challenge for homebuyers, who are grappling with high mortgage rates and a scarce supply of new and existing homes on the market. Many experts had predicted that home prices, which surged during the pandemic, would drop sharply this year. But the lack of homes for sale, exacerbated by owners locked into low mortgage rates who are sitting on the sidelines, is pushing up prices.
"Spring home-buying season is characterized by stronger return of buyers than sellers, which created another competitive market environment," Selma Hepp, CoreLogic chief economist, said in a statement. "The very meager inventory of existing homes is putting buyers in a position of having to pay over the asking price and, as a result, driving early spring price gains well beyond what is traditionally seen during this period."
Although average home prices are up nationally, there's a big regional divergence, with gains in the Southeast and major drops in the West. Prices in Seattle and San Francisco, have fallen 12% and 11%, respectively, over the last year. Meanwhile, housing costs in Miami are up 7.7%, while Tampa, Florida, and Charlotte, North Carolina, are up just below 5%.
"The housing market correction has been more evident in the West, where house prices skyrocketed in recent years," PNC senior economist Abbey Omodunbi said in a report.
Looking ahead, home prices are expected to stay under pressure as mortgage rates remain high.
Higher "borrowing costs have weighed heavily on demand and affordability and, coupled with ongoing supply constraints, could continue to be a hurdle for buyers," Rubeela Farooqi, chief U.S. economist at High Frequency Economics, said in a note.