US house prices at all-time high in August, but falls projected

US house prices hit a record high in August, according to data out on Tuesday from the S&P Dow Jones Indices, though the recent rise in mortgage rates is likely to put downwards pressure on prices in the coming year.

The S&P CoreLogic Case-Shiller home price index, increased 2.6% year-on-year in August, after a 1% rise in July.

Month-on-month, house prices were up 0.4% across the country, the seventh straight monthly gain since prices bottomed in January 2023.

The index reached a new high of 311.50, its highest level since records began in 1987.

"One measure of the strength of the housing market is the relationship of current prices to their historical levels," said Craig J. Lazzara, managing director at S&P Dow Jones Indices. "On that dimension, it’s worth noting that the National Composite, the 10-City Composite, and seven individual cities (Atlanta, Boston, Charlotte, Chicago, Detroit, Miami, and New York) stand at their all-time highs."

However, economist Matthew Martin from Oxford Economics said that prices will likely come under renewed pressure given elevated mortgage rates, which rose to a multi-decade high of nearly 8% as of last week.

"Though the recent surge in bond yields will likely keep the Fed on hold at tomorrow's FOMC meeting, rate cuts are not on the immediate horizon, and a higher-for-longer approach from the Fed will keep mortgage rates elevated," Martin said.

He predicts the annual change in house prices to turn negative by the end of 2023, before bottoming out at -4% in the first half of 2024.

"While higher mortgage rates will price many buyers out of the market, reducing demand and adding downward pressure to prices, they will also keep current homeowners who are locked into sub-4% mortgages from entering the market. This, paired with deteriorating homebuilder sentiment that should translate into a slower trend in housing starts, will keep supply of homes for sale tight and prices from falling too precipitously," Martin said.