US real estate prices were still soaring ahead of the last interest rate hike. The CoreLogic Home Price Index (HPI) reported record annual price growth for February. Most of the performance is due to the South, which has seen a new wave of population growth. The firm doesn’t see this lasting much longer, though. Higher mortgage rates and already steep prices are expected to throttle national growth.
US Home Prices Show Record Annual Growth
US real estate prices continue to show big gains in the latest CoreLogic HPI. The index shows national home prices increased 2.2% in February, and are now up 20% from last year. It’s worth noting this report precedes the US Federal Reserve’s first interest rate hike this cycle. That occurred in February, and may impact March numbers. More on that later, but first where the growth is actually coming from.
The US “Sun Belt” Is Showing The Highest Price Growth
Home price growth in the “Sun Belt” region showed the highest performance. The firm notes Florida (+29.1%), Arizona (+28.6%), Nevada (+25.8%), Utah (+25.5%), and Tennessee (+25.4%) all outperformed significantly. These states used to be some of the most affordable in the US, and saw a significant Millennial migration. Naturally higher price growth and coastal incomes have pushed those prices much higher.
CoreLogic HPI & Case-Shiller Trends
A comparison of the CoreLogic HPI & Case-Shiller Index, showing annual home price growth and their forecast for the next 12-months.
Source: CoreLogic.
Even the worst performing states aren’t doing too bad, with all showing growth. CoreLogic notes Illinois (+10.7%), Alaska (+8.9%), North Dakota (+8.4%), New York (+8.3%), and the District of Columbia (+5.4%) underperformed. Yes, the 5.4% annual growth is slow in this environment, but would be solid at any other time. The firm doesn’t see the good times lasting much longer, though.
US Home Price Growth Expected To Slow Soon
Higher mortgage rates are expected to bite into demand, and slow price growth over the next year. The firm’s latest forecast shows March 2022 prices rising just 0.6% for the month. Annual growth for February 2023 is also expected to fall to 5.0% — much slower than this year.
As for monthly growth, it’s unusual for March to underperform February, and it’s likely due to the rate hike. Annual home price growth is low, but still decently sized. Just remember, national rates include a range of state performance above and below 5%. Many states can see negative movements if they fall into the bottom of performance.
CoreLogic isn’t alone with their pessimistic outlook for real estate, expecting a slowdown. Just a few days ago, researchers at the Dallas branch of the US Federal Reserve confirmed they see a bubble. We touched on their models showing this back in December. However, the central bank has only recently acknowledged it. At this time, the market is far from seeing a 2008-style catastrophic market event. Though if you’re buying a home, it never hurts to make sure you can pay the mortgage, even in a downturn.
