Greg Englesbe
Mortgage News

As Wall Street hits peak, U.S. home prices show little sign of budging

Signs of slowing inflation sent Wall Street to its highest level in more than a year on Wednesday, boosting Asian stocks along with it as U.S. government data showed promising signs for the economy.

The S&P 500 reached its strongest closing level since April 2022, with stocks from Big Tech to utilities rising along with the news. High inflation has been a cloud over the stock market, since the Federal Reserve’s rate hikes dampen investment and slow down a wide range of industries.

The government’s latest report showed that year-over-year inflation fell to 3% in June, down from 4% in May and 9% last summer. The Fed’s inflation target remains 2%, creating uncertainty about whether an additional rate hike is around the corner to get there.

The ramifications of another rate hike could be crucial for the U.S. housing market. Home prices have lately been on the rise again, climbing 0.7% nationally in May compared to a seasonally adjusted rate, CNBC reported. They have been rising since January and were 0.1% higher annually in May.

Home prices have held firm despite mortgage rates nearly doubling to the 7% range since hitting historic lows during the pandemic. The rising rates were expected as a consequence of the Fed’s anti-inflationary measures, but there has not been a significant cooling of demand or a major increase in home supply.

There is a real possibility that prices could quickly trend upward again in an environment where home buyers already are compelled to accept high monthly payments as the price of getting a home at all.

“Though the backward-looking annual growth rate dipped to 0.1%, May’s exceptionally strong +0.7% month-over-month gain would equate to an annualized growth rate of 8.9%, suggesting the annual home price growth rate would remain at or near 0% for only a short time before inflecting and trending sharply higher in coming months,” Andy Walden, vice president of enterprise research at Black Knight, told CNBC.

The constraints on home supply figure to remain in effect in many parts of the country. Many home owners who purchased properties when rates were 4% or lower are not inclined to sell, since getting a new home would entail taking on a higher rate.

The more the U.S. housing market shows resilience, the more likely it appears that the Fed will again raise rates, MarketWatch reported. That could push the 30-year fixed mortgage rate into the 8% range, punishing home buyers even as prices have shown minimal longer-term reaction the Fed’s moves. With fewer homes on the market and demand still high, affordability does not appear to be around the corner. Those hoping prices will cool off and balance out the high mortgage rates may not see that wish come true any time soon.

“The housing market has started to recover, and this is a problem for the Fed because more demand for housing will boost home prices and rents,” Torsten Slok, chief economist at Apollo, told Marketwatch in May.

Brian Jacobsen, chief economist at investment advisor Annex Wealth Management, told the Associated Press he expects the Fed will follow through with another hike.

“They’ll probably still pull the trigger on a hike, but it will be based on symbolism more than substance,” Jacobsen said.

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