Fed's rates stance is bad news for homeowners

Homeowners including residential real estate investors are being negatively impacted by higher interest rates, as price increases are slowing year-over-year.

While a new report from CoreLogic shows that the annual rise in prices nationwide was 5.3% in April, the same as in March, the outlook for the next 12 months shows a significant weakening of price gains.

By spring 2025 the firm’s HPI Forecast predicts that the annual increase in U.S. single-family home prices is expected to slow to 3.4%. Although some states will see gains of 6%, none will be in the range of New Hampshire (12%), New Jersey (11%) and South Dakota (10.8%) seen in April this year.

The slowing pace of price gains reflects both rising inventories in some parts of the country and the elevated cost of 30-year fixed-rate mortgages which are around 7% currently.

“Home price growth continues to slow, as a comparison with a strong 2023 spring is still impacting year-over-year differences,” said Dr. Selma Hepp, chief economist for CoreLogic. “Nevertheless, the April uptick in mortgage rates to this year’s high has cooled some of the typical spring homebuyer demand, which pulled monthly gains of 1.1% below the March-to-April average.”

Homebuyers’ sensitivity to rates and expectation that the Fed will cut rates sometime down the road is likely to keep many on the sidelines in the near term, but as with all things real estate it won’t be a uniform situation.

“The price cooling is more pronounced in markets where there has been an influx of inventory and/or new construction, as well as those where additional homeownership costs (such as insurance, taxes and HOA fees) have risen relatively faster,” added Hepp.

For investors in homes for the rental market, the slowdown in price appreciation is double whammy, with CoreLogic data also showing recently that increases in rents has slowed, providing weaker gains for investors’ monthly returns.