Rising Interest Rates Slowing Home Price Appreciation

CoreLogic, Irvine, Calif., said home price appreciation in August slowed to a rate not seen in two years as rising interest rates created drag on home affordability.

The company’s monthly Home Price Index reported home prices increased nationally by 5.5 percent year over year. On a month-over-month basis, prices increased by just 0.1 percent.

The report said Nevada (13 percent) and Idaho (12.2 percent) were the only states to post double-digit annual price growth in August; Washington slowed to 9.2 percent after posting double-digit price growth for most of the past two years; Colorado slowed to 7.7 percent. In North Dakota, home prices fell by 1 percent year over year.

Las Vegas led all markets with 13.7 percent annual price growth, although CoreLogic rated it and 38 percent of the top 100 markets in the country as “overvalued.” The report said 18 percent of markets were “undervalued” and 44 percent were “at value.”

CoreLogic Chief Economist Frank Nothaft said slackening demand is reflected in slowing appreciation. “The rise in mortgage rates this summer to their highest level in seven years has made it more difficult for potential buyers to afford a home,” he said. “National appreciation in August was the slowest in nearly two years, and we expect appreciation to slow further in the coming year.”

Further analysis by CoreLogic and RTi Research, Norwalk, Conn., suggests while home prices are cooling, they are still rising in most markets. Home sales are down in some metros, in part because sellers believe prices will continue to rise and that by waiting, they can sell their homes for a better price. Many intend to use proceeds from the sale of their current home to fund the down payment of their next home. Sixty-six percent of homeowners who are considering buying in the next 10 years will need to sell their current homes to finance their next one. Meanwhile, 35 percent of recent homebuyers said they used funds from the sale of their previous home to finance the down payment of their current home.

Looking ahead, the CoreLogic HPI Forecast projects the national home-price index to increase by 4.7 percent on a year-over-year basis through August 2019 and to decrease by 0.4 percent month to month.

“In some markets, homebuyers and sellers are remaining cautious and taking a pause as price appreciation continues to rise,” said CoreLogic President and CEO Frank Martell. “By waiting to sell, homeowners believe they will get the greatest return on their investment; the more money they have for a down payment, the easier the purchase payments will be for their next home.”