Home price appreciation, which skyrocketed during the pandemic, is showing signs of slowing, according to a monthly report published by CoreLogic Tuesday.
In May, home prices increased by 20.2% year-over-year, the report said. But come next May, the data vendor predicts home price appreciation will dip to 5%.
The recent hikes in mortgage interest rates by the Federal Reserve has contributed to the expected cool down of home prices.
As of June 23, mortgage interest rates were at 5.81%, per Freddie Mac’s PMMS mortgage survey. At the beginning of January, interest rates hovered at 3.22%. CoreLogic’s report said rising rates and affordability challenges will lessen buyer demand and will continue to affect home price growth.
The silver lining behind the market cool down is a recalibration, which should restore balance between buyers and sellers, said Selma Hepp, deputy chief economist at CoreLogic, in a statement.
“While annual home price growth still exceeds 20%, we expect to see a rapid deceleration in the rate of growth over the coming year,” Hepp said. “Nevertheless, the normalization of overheated buying conditions should bring about more of a balance between buyers and sellers and a healthier overall housing market.”
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Home prices in Tampa, Florida grew by 33.4% —the highest year-over-year home price increase recorded in a metro area in May. Phoenix trailed behind, with home prices growing 28.7% year-over-year. Both cities also registered the largest gains in March and April, according to CoreLogic.
Florida and Tennessee posted the highest home price gains, 33.2% and 27.4%, respectively. Arizona ranked third with home prices growing by 27.3% compared to last May, the report shows.
Homes in Washington D.C. ranked last for appreciation, at 4.3%, the data vendor said. The rate of price growth in the city should rise slightly by May 2023, CoreLogic forecasts.
The data vendor predicts a 50% chance home price growth will significantly dip by next May in Boise City, Idaho, and in three Washington state areas: Tacoma-Lakewood metro, the Olympia-Turnwater metro and Bellingham.