San Diego home prices were up annually in a closely watched report but there are signs of a slowdown coming.

The San Diego metropolitan area’s annual home price increased 0.7 percent in July, said the recently released S&P Case-Shiller report. That was the 11th highest in the 20-city index, down from the pandemic heyday when America’s Finest City was regularly in the top three.

Index data shows San Diego metro — which includes all of the county — was also up 0.7 monthly. That is a decrease from the last four months, when prices were increasing up to 2 percent a month. Like much of the nation, home prices dropped when interest rate hikes started slowing the market at the end of 2022 but started climbing again coming in the spring.

Prices rose as a result of low inventory, analysts said, and even rising rates couldn’t seem to stop it. However, July is typically one of the hottest months for home purchases, which were down across the board.

Craig Lazzara, managing director at S&P, wrote that, for now, price increases are a good sign for the market.

“Although the market’s gains could be truncated by increases in mortgage rates or by general economic weakness,” he wrote, “the breadth and strength of this month’s report are consistent with an optimistic view of future results.”

The Case-Shiller Indices track repeat sales of identical single-family houses — and are seasonally adjusted — as they turn over through the years. The San Diego County median resale single-family home price was $935,000 in July.

In the last week of July the average interest rate for a 30-year, fixed-rate mortgage was 6.81 percent, said Freddie Mac. It has continued to climb and was an average 7.5 percent last week, said Mortgage News Daily.

There are some small signs that increasing interest rates might be affecting the market. In July, just 4.6 percent of San Diego County homes had a price drop, said the Redfin Data Center, but that had risen to 5.8 percent in mid-September. Also, the median days on the market rose from 12.7 to 15.7. The number of homes for sale hasn’t changed much during that time — around 3,400 homes listed, compared to nearly 6,000 last summer.

“A modest price correction is probably in the offing,” wrote Lisa Sturtevant, chief economist at Bright MLS, “as demand is going to slow further this fall in response to sustained higher mortgage rates.”

She wrote in her analysis that while high mortgage rates could dissuade some buyers, demand is still driven by millennials buying their first homes. Sturtevant wrote that the low number of homes for sale would likely not mean a huge drop in prices — more like, under 5 percent in the coming months.

On a national basis, the biggest annual price gains in the index were Chicago, up 4.4 percent, Cleveland, up 4 percent and New York, up 3.8 percent. Western markets had the biggest drops: Las Vegas was down 7.2 percent in a year, followed by Phoenix (down 6.6 percent) and San Francisco, down 6.2 percent.

In general, lower-cost areas are seeing the biggest price gains, noted CoreLogic chief economist Selma Hepp.

“Lower-priced homes are seeing stronger recovery,” she wrote, “given the lack of affordable inventory and more demand pressure put on that segment.”

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Annual price growth by metropolitan area

S&P/Case-Shiller Home Price Index, July 2023

Chicago: 4.4 percent
Cleveland: 4.0 percent
New York: 3.8 percent
Detroit: 3.2 percent
Atlanta: 2.2 percent
Miami: 1.9 percent
Washington, D.C.: 1.9 percent
Charlotte: 1.8 percent
Boston: 1.3 percent
Minneapolis: 1.0 percent
San Diego: 0.7 percent
Los Angeles: 0.4 percent
Tampa: -0.8 percent
Denver: -2.8 percent
Portland: -3.3 percent
Dallas: -3.4 percent
Seattle: -5.5 percent
San Francisco: -6.2 percent
Phoenix: -6.6 percent
Las Vegas: -7.2 percent
National: 1 percent

Source: SDuniontribune by Phillip Molnar