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The double-digit growth streak in US home prices is halted

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By Dan Burns

(RockedBuzz via Reuters) – Annual price growth in the increasingly fragile US housing market fell to single digits in October for the first time in about two years, as mortgage rates rose more than 7% that month and further squelched the request. on Tuesday.

The national S&P CoreLogic Case Shiller home price index rose 9.2% in October, down from 10.7% in September and posting its first single-digit gain since November 2020. Federal Housing Finance, meanwhile Agency, which oversees US mortgage lenders Fannie Mae and Freddie Mac, said annual home price growth slowed to 9.8% in October from 11.1% in September, marking the first increase not in two figures for that index from September 2020.

On a monthly basis, the S&P Case Shiller index fell for the fourth consecutive month, while the FHFA indicator remained unchanged.

“As the Federal Reserve continues to hike interest rates, mortgage financing continues to be a drag on home prices,” Craig Lazzara, chief executive officer of S&P DJI, said in a statement.

The housing market felt the most visible effects of the Fed’s aggressive interest rate hikes aimed at curbing high inflation by reducing demand in the economy. The Fed raised rates again by half a percentage point this month, ending a year that saw its key rate jump from near zero in March to between 4.25% and today’s 4.5%: the highest rates rates have increased since the early 1980s. Fed officials have forecast that rates would hike further in 2023, likely to surpass 5%.

GRAPH: House Price Growth Cools (https://www.ceiving.com/graphics/USA-ECONOMY/HOUSING/zgvobbexapd/chart.png)

Unlike other parts of the economy — many of which have yet to show a significant impact from the Fed’s actions — the housing market reacts in near real-time to the central bank’s engineered jump in borrowing costs.

The 30-year fixed mortgage rate surpassed 7% in October for the first time since 2002, more than doubling in nine months, tugging at what had been a red-hot housing market fueled by historically low borrowing costs and a rush to the suburbs during the coronavirus pandemic.

Last week’s data showed that the combined annual sales rates of new and existing homes through November fell 35% from January – among the fastest declines on record – to the slowest since late 2011. New single-family homes begin and permit issuance slipped to even a two-and-a-half-year low last month.

While mortgage rates have fallen since early November to about 6.3% this month, according to data from Freddie Mac and the Mortgage Bankers Association, they remain nearly double their year-ago level at this time and will continue to weigh on the real estate sector.

Economists, however, do not see a repeat of the house price slump witnessed by the financial crisis, when house prices as measured by the S&P Case Shiller fell year-on-year for five full years from March 2007 to April 2012. Unlike then, the supply of homes on the market remains extraordinarily limited and should maintain a low under house prices.

The National Association of Realtors earlier this month forecast that prices for existing homes — by far the majority of the market — are expected to remain more or less stable in 2023.

“As the Fed tightens financial conditions, the housing market will likely slow further in the coming year,” said Jeffrey Roach, LPL’s chief financial economist. “However, the low inventory of homes available for sale should cushion the impact of the rate hike and insulate the residential market from a reduction in the Great Financial Crisis.”

(Reporting by Dan Burns; Editing by Chizu Nomiyama)