U.S. home prices increased a mere 0.1% in August compared with July and were up 4.5% compared with August 2023, according to First American’s home price index report.
And while that signals a slowdown from previous months, Mark Fleming, chief economist for First American, notes that it represents a return to historical norms.
“Annual house price appreciation nationally slowed for the eighth consecutive month, inching closer to the pre-pandemic historical average of approximately 3.5 percent,” Fleming says in a statement. “Housing demand remains strained under the pressure of elevated mortgage rates and high prices, while for-sale inventory has increased compared to last year. Sluggish demand combined with increasing supply is a recipe for cooling home price appreciation.”
Demand from first-time homebuyers is keeping home prices in the lower price tiers elevated.
“Potential first-time home buyers suffer the most from affordability challenges, as they lack the equity from an existing home to bring to the closing table,” Fleming says. “Yet, first-time home buyer demand appears to be resilient, since annual price growth in the starter home price tier remained positive in 25 of the top 30 markets we track in August. Notably, many of the top markets for growth in starter home prices are those that are relatively more affordable, such as Pittsburgh, Baltimore and St. Louis.”
U.S. home prices nationally are now 54.5% higher compared to pre-pandemic levels (February 2020), the firm says.
First American notes that it revised down its previous home price index report 0.2 percentage points, from 0.3% to 0.1%.
“The key question moving forward is whether the recent, and potentially ongoing, downward trend in mortgage rates fueled by the Fed’s widely expected interest rate cut will be enough to bring buyers off the sidelines,” Fleming says. “But most buyers are also sellers, and they will remain significantly rate locked-in by their current low-rate mortgages, so modestly lower rates may not spur significant numbers of buyers into the market.”
Photo: David Nieto