Home price appreciation is finally showing signs of slowing down after accelerating massively over the last two years.
A report from CoreLogic this week shows that home prices rose by 20.2% in May, compared with the same month last year. While that’s still pretty rapid growth, CoreLogic said an analysis of the data shows there are reasons to think home price acceleration is about to slow down, and it’s forecasting appreciation to dip to just 5% by this time next year.
According to the report, recent increases in mortgage interest rates have contributed to a slowdown in home price appreciation.
CoreLogic’s report states that mortgage rates sat at 5.81% as of June 23, according to Freddie Mac’s PMMS mortgage survey. Back in January, mortgage rates were hovering at just 3.22%. CoreLogic said the increase in mortgage rates have only added to growing affordability problems, with more buyers being priced out of the market. As a result, it expects buyer demand to lessen and put the brakes on home price growth.
Selma Hepp, deputy chief economist at CoreLogic, described the coming cooldown as a welcome “recalibration” of the market that will restore balance between buyers and sellers.
“While annual home price growth still exceeds 20%, we expect to see a rapid deceleration in the rate of growth over the coming year,” she 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.”
CoreLogic’s report highlighted home price appreciation across the U.S. It found that homes in Tampa, Florida, saw their value increase by 33.4% on average in May, the highest year-over-year increase in the country. Phoenix also saw big price gains, with home prices growing by 28.7% compared to one year earlier. The two cities also saw the largest price gains in April, CoreLogic said.
At the state level, CoreLogic said Florida and Tennessee saw the highest home price rises at 33.2% and 27.4% respectively. Arizona came third, with home prices up 27.3% compared to a year prior. Buyers who’re looking for cheaper homes could well find them in Washington D.C. which saw the lowest home price appreciation of any metro area, at just 4.3%.
CoreLogic said it believes there is a 50% chance that home price appreciation will significantly slow down by this time next year, especially in markets such as Boise City, Idaho, and the Tacoma-Lakewood metro, Olympia-Turnwater metro and Bellingham, Washington.