Home Prices Keep Climbing While Mortgage Rates Stay Near 7 Percent

August's Case-Shiller data shows prices rising for a fifth straight month even as rates, inflation and oil prices keep real affordability getting worse.

Home prices in the top 20 U.S. cities rose again in August, the fifth straight monthly increase, even with mortgage rates sitting in the mid-to-high 6% range. The S&P Cotality Case-Shiller index was up 0.27% for the month and 2.65% year over year, the strongest annual gain since May. Rates ripping higher hasn't stopped prices from grinding up. That combination, rising prices and rising rates at the same time, is exactly why affordability keeps getting worse instead of better.

Chicago Leads, Seattle Keeps Falling

The gains are not spread evenly. Chicago led all metros for the sixth straight month, up 6.7% annually, followed by New York at 6.2% and Cleveland at 4.3%. On the other coast, Seattle posted the largest annual decline for the third straight month, down 2.0%, followed by Las Vegas at negative 1.3% and Denver at negative 0.8%.

That split matters for jobs, not just index numbers. Real estate agents, loan officers and remodeling contractors in Chicago, New York and Cleveland are working with rising home equity and more transaction volume. The same jobs in Seattle, Las Vegas and Denver are working against falling values, which means fewer deals, fewer refinances and less money homeowners are willing to put into renovation work.

Why Rising Prices Still Mean Falling Affordability

Here's the part that actually hits household budgets: prices declined in real, inflation-adjusted terms for the 15th straight month in August. Rebecca Kaufman, Associate Director of Commodities at S&P Dow Jones Indices, said the gap narrowed only because nominal home price growth strengthened, not because costs got easier to handle. Inflation is running at 3.4%, Brent crude is near $100 a barrel, and mortgage rates are still in that mid-to-high 6% range.

On a non-seasonally adjusted basis, the national and 10-city composite indices actually fell 0.2% and 0.4% in August, while the seasonally adjusted numbers rose 0.3% and 0.4%. That gap tells you the usual post-summer slowdown is masking real underlying strength in prices. For workers, this is the math that matters: your paycheck has to stretch against both the headline price of a house and a rate environment that adds hundreds of dollars a month to the loan on it. For a small business owner, a borrowing environment this expensive doesn't stay contained to mortgages. Business loans and lines of credit track the same rate backdrop.

What Equity-Rich, Rate-Locked Homeowners Mean for Contractors

This is where my marketing company's world and my insurance agency's world both show up. When rates stay this high, people who already own a home and have a much lower rate than today's market are reluctant to sell and buy again at a higher rate. Instead, a lot of them put money into the house they already have. That is good news for the home-service contractors I work with every day: roofers, pressure washers, lawn care and handyman businesses, especially in the metros where equity is rising, like Chicago, New York and Cleveland.

The insurance side is the piece people miss. As home values rise, what it would actually cost to rebuild that same home rises with it. In my experience, a lot of homeowners are still carrying a policy priced off what the house cost when they bought it years ago, not what it costs to rebuild today with current materials and labor. Rising prices are a good trigger to go back and check that your replacement cost coverage actually matches today's rebuild number, not yesterday's.

What to Watch and Do Next

A few practical things to take from this report, whether you're buying, running a business, or just own a home.

• If you're house hunting, look at the real, inflation-adjusted price trend, not just the headline year-over-year number. It has been negative for 15 straight months even while nominal prices rise.
• If you run a home-service business, the metros with rising equity, like Chicago, New York and Cleveland, are where renovation demand is strongest right now. The declining metros, Seattle, Las Vegas and Denver, are tougher sledding.
• If you own a home, pull out your homeowners policy and check the rebuild (replacement cost) coverage against current construction costs in your area, not against what you paid for the house.
• Watch next month's Case-Shiller release to see whether the five-month streak of gains continues or whether mid-to-high 6% rates finally start to cool nominal prices along with real ones.