Despite rising mortgage rates, home prices continued to climb to new record highs in February, driven by strong demand and limited housing supply, according to the latest S&P Case-Shiller Home Price Index released on Tuesday. Home prices across the U.S. rose by 6.4% in February from a year earlier, marking the fastest growth rate since November 2022. The jump was even more pronounced in big cities, with prices in 10 major cities rising by 8% year-over-year and prices in 20 major cities increasing by 7.3%.
San Diego reported the highest price increase at 11.4% from last year, followed by Chicago and Detroit at 8.9%, while Portland recorded the slowest annual increase at 2.2%. All cities in the index reported annual price increases, with cities like Los Angeles, Washington D.C., and New York hitting all-time highs. Despite economic uncertainty, enthusiasm for potential Federal Reserve cuts and lower mortgage rates have supported buyer behavior, according to Brian Luke from S&P Dow Jones Indices.
Large metropolitan areas in the Northeast, including Boston, New York, and Washington D.C., have been the best performing markets over the last half-year, fueled by the return to office. In contrast, smaller and sunnier markets thrived in the early 2020s due to remote work trends. Even as mortgage rates have reached their highest level since November, persistent demand and limited housing supply continue to drive home values upward. Redfin’s report found that new listings are up 10.2% year-over-year, but rising mortgage rates could reinforce the lock-in effect, where homeowners choose to keep their existing low-rate mortgages rather than selling and purchasing homes at higher rates.
Demand for housing, measured by Redfin’s Homebuyer Demand Index, remains at its highest level in around eight months. With prices buoyed by low inventory and persistent demand, housing costs are expected to remain elevated for the foreseeable future, according to Redfin Economic Research Lead Chen Zhao. As the housing market continues to see record-breaking price increases, the ability of buyers to afford homes may be strained, especially if mortgage rates continue to rise. Home prices are likely to remain high as long as demand outstrips supply, making it a challenging market for buyers seeking to purchase a home in the near future.
