Home price growth slowed for third straight month in May

Amid recent reports of a cooling market, the rapid acceleration of home prices showed signs of further moderation in May, according to data from the Federal Housing Finance Agency.

The FHFA’s Home Price Index, which measures price changes through the analysis of data from all 50 states and over 400 cities, increased on a year-over-year basis by 18.3% in May and by 1.4% from the previous month. While still elevated, the rate of growth slowed from 18.8% between May 2020 and May 2021 and a downwardly revised 1.5% in April. 

“Since peaking in February, price appreciation has moderated slightly,” said Will Doerner, supervisory economist in FHFA’s division of research and statistics. “Price growth continues to remain above historical levels, supported by the low inventory of properties for sale.”

High interest rates contributing to decreased affordability are chipping away at demand, though. Based on the most recent Freddie Mac 30-year fixed-rate average, the typical monthly mortgage payment for a homebuyer is now $2,387, up 44% from a year ago, according to Redfin. The online real estate brokerage also reported that home-buying competition, measured by the volume of bidding wars, has fallen to its lowest in more than two years. Additionally, downward pressure on purchases over the last few months, combined with inflation and other economic concerns, led researchers at the Mortgage Bankers Association, Fannie Mae and Freddie Mac all to downwardly revise their purchase originations forecasts for the year.

May home prices increased across all nine federal U.S. geographic regions on both a monthly and yearly basis, per the FHFA. New England saw the largest uptick between April and May, up 2%, followed by East South Central and South Atlantic regions at 1.9%. The Pacific division lagged the rest of the field with just an 0.2% change month over month.

On an annual basis, the South Atlantic division had the highest rate of price growth at 23.8%, with the Mountain region in second at 22.7% and East South Central in third at 19.7%. The Middle Atlantic division, with a 13.9% yearly gain, reported the smallest increase.

When comparing annual rates of change from one year ago, costs in the South Atlantic also saw the biggest spike in prices, which grew to 23.8% from 18.2% one year earlier. On the other end of the spectrum, prices moderated the quickest in the Pacific division, dropping to a 16% pace of growth after surging 21.7% in May 2021.