According to the latest data from the S&P Case-Shiller index, U.S. home prices have increased for the fourth consecutive month in May. While the national index, which provides a broader measure of home prices, rose by 0.7% on a month-over-month basis, it experienced a slight decrease of 0.5% over the past year. All figures have been seasonally adjusted.
Nationally, the year-over-year appreciation in May remained at 1.7%, which was consistent with the previous month. However, one persistent issue plaguing the housing market is the lack of supply. As a result, prospective buyers are encountering intense competition for existing homes and turning towards the new home market. Despite mortgage rates hovering around 7%, buyer demand remains strong as people have adjusted to the higher rates.
Midwestern cities stood out in terms of the largest home-price gains in May. Among the top 20 cities, Chicago, Cleveland, and New York emerged as the leaders, with the highest year-over-year price increases. In Chicago, homes experienced a substantial gain of 4.6% in May 2023 compared to the previous year.
Additionally, a separate report from the Federal Housing Finance Agency indicated a rise in home prices by 0.7% from April to May. The Pacific region boasted the strongest home prices according to the government’s data.
Over the course of the last year, the FHFA index witnessed an overall increase of 2.8%.
Big picture: The Midwest Becomes a Buyer’s Paradise
It seems that buyers in the housing market have found a new strategy to navigate the challenging landscape: heading to more affordable markets in the Midwest. As homeowners opt to hold onto their properties, either renting them out or simply staying put, buyers are faced with limited options and fierce bidding wars in other parts of the country. This has prompted them to seek refuge in new homes, leading builders to meet the growing demand.
S&P Reports on Home Price Rally
According to Craig J. Lazzara, the managing director at S&P DJI, the rally in U.S. home prices has continued in May 2023. He pointed out that the regional differences are particularly striking. The top performers this month were surprising: Chicago (+4.6%), Cleveland (+3.9%), and New York (+3.5%). Lazzara noted that it is unusual for a Midwestern city to take the top spot, as it has been five years since a cold-weather city held such a position (and even then, Seattle was not that cold).
In response to the latest developments, stocks were up in early trading on Tuesday. Additionally, the yield on the 10-year Treasury note rose above 3.9%.