Home prices hit new highs, driven by tighter supply

Home prices hit a record high in May, rising 0.7% nationally compared with April at a seasonally adjusted rate, according to the Black Knight Home Price Index.

Prices, which have been rising since January, were 0.1% higher in May than a year earlier.

The sharp jump in mortgage interest rates last year threw cold water on an overheated housing market, but it didn’t last long. Even with rates still high, home prices are now gaining again, and the gains are accelerating with each new month.

“There is no doubt that the housing market has reignited from a home price perspective,” said Andy Walden, vice president of enterprise research at Black Knight.

“Though the backward-looking annual growth rate dipped to 0.1%, May’s exceptionally strong +0.7% month-over-month gain would equate to an annualized growth rate of 8.9%, suggesting the annual home price growth rate would remain at or near 0% for only a short time before inflecting and trending sharply higher in coming months,” Walden added.

Prices began dropping last summer, after the average interest rate on the 30-year fixed-rate mortgage more than doubled in just six months. They continued to fall until January, when buyer demand returned but came up against very tight supply. Buyers may have simply gotten used to higher rates.

“Earlier this year I shared that I believed 6% mortgage rates were accepted as the new normal. I think now we’re in an environment where 7% mortgage rates are now the new normal, and people are accepting it,” Robert Reffkin, CEO of Compass Real Estate said last week on CNBC’s “Squawk on the Street.”

By May, just over half of the nation’s 50 largest housing markets, mostly in the Midwest and Northeast, had either returned to their prior price peaks or set new highs.

Home prices are still weaker in the West and in many of the cities deemed pandemic “boom towns,” which had an influx of remote workers finding new homes during the earlier days of Covid.

But those prices are starting to firm up. Homes in San Jose, California, lost 10% of their value last year, but inventory is starting to fall again, and prices there are now reheating. They rose 1.4% in May, the second largest month-to-month increase of any market on a seasonally adjusted basis. San Diego, Los Angeles, San Francisco and Seattle also saw price growth in May, as well.

The one exception is Austin, Texas, one of the biggest pandemic boom towns.

“Inventory there continues to run above pre-pandemic levels, putting downward pressure on prices, which have fallen to -13.8% below peak, the largest gap of any market. Just eight of the top 50 markets are currently more than 5% below their 2022 peaks,” Walden said.

In general, though, supply is declining again. New listings are down about 25% from a year ago, as homeowners with sub-4% mortgage rates are reluctant to sell their homes and potentially pay a…