Home prices fell for fourth straight month in October amid Fed rate hikes
Home prices fell for the fourth straight month as high interest rates and stubborn inflation dampen the housing market, according to data released Tuesday.
The S&P CoreLogic Case-Shiller U.S. National Home Price Index, a gauge of home prices across the country, fell 0.3 percent from September to October after seasonal adjustments.
It was the fourth consecutive monthly decline for the index after home prices peaked in June, said Craig Lazzara, managing director at S&P Dow Jones Indices, in a Tuesday release.
“Despite considerable regional differences, all 20 cities in our October report reflect these trends,” Lazzara said. “Prices declined in every city in October.”
“These declines, of course, came after very strong price increases in late 2021 and the first half of 2022,” he added.
After more than a decade of steady increases, home prices have fallen over the past six months amid the Federal Reserve’s battle with inflation. The Fed’s rapid rate hikes have boosted 30-year fixed mortgage rate home loans above 6 percent, making houses much less affordable for many buyers.
“For most of the economy, rising interest rates take time to have an effect, but housing is one of those parts of the economy that is more directly (and quickly) affected,” said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, in a Tuesday analysis.
“Higher Fed [rates] quickly translates into higher mortgage rates, which has an immediate impact on prospective homebuyers’ estimated monthly payments and that reduces the amount of house that they can afford,” he wrote.
The slight decline in home prices has been little relief to buyers after more than a year of rapid price increases. Even after four straight monthly declines, home prices were still up 9.2 percent over the past 12 months in October without adjusting for seasonal differences.
The combination of inflated prices and higher mortgage rates are likely to keep weakening the housing market well into 2023. The Fed is hoping to reduce inflation in part by slowing home sales enough to sap the momentum they generate for the economy and lower the demand for expensive construction materials and home furnishings.
With the Fed unlikely to cut interest rates until 2024 at the soonest, mortgage rates are likely to stay high for the foreseeable future. But higher rates will also make it more expensive for builders to fill a long-standing shortage of affordable homes, which may keep prices high regardless of the Fed’s efforts.
“The Federal Reserve is singularly focused on inflation and is going to keep raising interest rates until they feel that inflation is dropping back to their 2% target,” Zaccarelli wrote.
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