Amid an environment of tight inventory and stubbornly high mortgage rates, housing prices in the U.S. are on the rise -- again. S&P CoreLogic's latest Case-Shiller U.S. National Home Price NSA Index, released March 26, 2024, reports that annual home-price growth increased in January 2024 by 6 percent. That's up from a 5.6 percent gain in December 2023 and the fastest rate of year-over-year growth since 2022.

Case-Shiller Index up compared to last year

Month-over-month numbers were relatively flat, with the 10-city index remaining the same and the 20-city index rising by a tiny 0.1 percent. However, the annual growth was more significant for both indices, rising 7.4 percent and 6.6 percent, respectively.

"U.S. home prices continued their drive higher," said Brian D. Luke, head of commodities, real & digital assets at S&P DJI, in a statement. "Our national composite rose by 6 percent in January, the fastest annual rate since 2022. Stronger gains came from our 10- and 20-city composite indices. On a seasonal adjusted basis, home prices have continued to break through previous all-time highs set last year."

Regional fluctuation continues

"For the second consecutive month, all cities reported increases in annual prices," Luke said. San Diego once again led the pack, achieving double-digit growth with an 11.2 percent jump.

The story looks different in a month-over-month comparison, though. "On a monthly basis, home prices continue to struggle in the face of elevated borrowing costs," Luke said. "Seventeen markets dropped over the last month. Only Southern California and Washington D.C. have stood up the rising wave of interest rates and deliver positive returns to start the year: San Diego rose 1.8 percent in January, followed by D.C. with 0.5 percent and Los Angeles at 0.1 percent."

The Fed and the housing market

The Federal Reserve's aggressive moves to combat inflation -- with 10 consecutive rate hikes over 2022 and 2023 -- have put upward pressure on mortgage rates, even as inflation declined. While the Fed doesn't directly set mortgage rates, the mortgage market's interpretations of the central bank's moves influence how much you pay for your home loan.

The long period of low mortgage rates following the Great Recession came to an end in 2022. In June 2022, rates topped 6 percent for the first time since 2008. The upward trend continued through October, when rates hit a 23-year high of 8 percent. Steve Reich, division president at Go Mortgage in Pennsylvania, highlights the impacts that these trends have on the housing market. "As the Fed worked to get inflation under control, higher interest rates tempered what many homebuyers could afford and, in turn, softened home sales," he said in a statement.

Higher rates also exacerbate the housing shortage, stopping many homeowners from selling when they otherwise might -- and thus keeping those homes off the market and out of the supply of available housing.

The remarkable rise in mortgage rates is acting as a kind of golden handcuffs.

-- Mark Hamrick, Bankrate Senior Economic Analyst

"The remarkable rise in mortgage rates is acting as a kind of golden handcuffs," says Mark Hamrick, Bankrate's senior economic analyst. Higher rates are "limiting the desire and some of the ability of people to move out of the homes they currently own. That further pressures housing inventory, adding insult to supply injury."

While rates are thankfully no longer hovering near 8 percent, they remain elevated: As of March 20, 2024, the average 30-year mortgage rate sat at 7.07 percent.

What it means for homebuyers and sellers

The current market has proved challenging on both sides of the real estate transaction -- and unless we see a significant drop in either home prices or mortgage rates, both buyers and sellers will need to go with the flow. "For prospective sellers, the new status quo dictates they remain flexible on price, given the extraordinary challenges posed by the sharp increase in mortgage rates," Hamrick says.

"Those who are very motivated to purchase a home should be prepared for the sticker shock associated with the increased expense of financing the purchase," he continues. "Part of the flexibility that may be required includes seeking a possible downgrade of footprint or quality of home, along with the neighborhood, in order to achieve an affordable purchase.

Reich emphasizes that buying a home in today's market, while difficult, is still possible. "The average time active listings stay on the market is getting longer, resulting in a slightly less competitive market," he says. National Association of Realtors data proves that out: The median days-on-market length was 38 days in February, up both month-over-month and year-over-year, which gives buyers more time to make an informed, well-considered decision. "And that's good news for homebuyers who are still in the game."