Home prices hit record high as affordability crisis worsens

Home prices hit a new record in May amid a persistent housing shortage, even as high mortgage rates continued to drive away affordability for millions of Americans.

Prices rose 5.9% nationally in May from a year earlier, the S&P CoreLogic Case-Shiller index showed on Tuesday, up from a 6.4% pace last month.

On a monthly basis, prices rose by 0.3%, according to the index.

“Home prices hit a new high in May,” said Lisa Sturtevant, chief economist of Bright MLS. “But with affordability a growing challenge for homebuyers and more new listings coming on the market, we may be on the cusp.”

The 10-city composite, which includes Los Angeles, Miami and New York, rose 7.7% on the year, compared with an 8.1% increase in April.

The 20-city composite, which also tracks home prices in Dallas and Seattle, posted an annual gain of 6.8%, down from the 7.3% figure posted last month.

Prices rose in all 20 major metro markets tracked by the index.

“All 20 markets saw annualized gains for the past six months,” Brian Luke, head of commodities, real and digital assets at S&P DJI, said in a release. “The last time we saw a streak this long was when all markets rose for three straight years during the COVID housing boom.”

The biggest price increase took place in New York, which posted a year-over-year increase of 9.4%. It was followed by San Diego and Las Vegas, with respective gains of 9.1% and 8.6%.

Portland, Oregon, again saw the smallest gain in May, with home prices up just 1% from a year ago.

The Case-Shiller index reports with a two-month lag, meaning it may not capture the latest market news.

There are a number of driving forces behind the affordability crisis.

Years of no construction fueled the country’s housing shortage, a problem that was later exacerbated by rapidly rising mortgage rates and expensive building materials.

Higher mortgage rates over the past three years have also created a “golden handcuff” effect on the housing market.

Sellers who locked in a record low mortgage rate of 3% or less during the start of the pandemic have been reluctant to sell, further limiting supply and leaving few options for eager potential buyers.

Economists predict that mortgage rates will remain high in 2024 and that they will only begin to fall once the Federal Reserve begins to cut rates.

Even then, rates are unlikely to return to the lows seen during the pandemic.

“Despite some easing in house prices in the second half of 2024, there is no evidence to suggest we will see a major decline in house prices nationally,” Sturtevant said. “While increasing, the inventory of homes for sale is still low by historical standards. Demand will increase this fall as mortgage rates decline.”