Home Price Gains Are Slowing -- But Don't Rush to Buy a Home Just Yet

Just because gains are slowing doesn't mean homes are suddenly affordable.

There's a reason so many buyers have struggled to purchase a home over the past year. Not only has housing inventory been extremely sluggish, but home prices have been sky-high (and to be clear, those two factors are very much related). Throw in rising mortgage rates, and it's not shocking that many people have been forced to put their home buying plans on hold and wait for the real estate market to settle down.

Now in that regard, there's some good news -- the market has been settling, at least to some degree. In late August, the S&P CoreLogic Case-Shiller Indices released their latest data, which found that in June, annual home price gains came to 18%, a decrease from 19.9% the previous month. Meanwhile, the indices' 20-City Composite clocked in at an 18.6% annual gain, down from 20.5% a month prior.

Smaller home price gains are a good thing for buyers -- there's no question about it. But to be clear, just because home price gains are slowing down doesn't mean home prices have reached affordable levels. And it's very important that buyers note that distinction.

It's still a pretty bad time to buy a home

If you kicked off your home search at this time last year, you may have been overwhelmed by soaring listing prices and a glaring lack of inventory. Both issues are, thankfully, starting to resolve.

Sellers aren't getting away with the record-setting prices we saw last year. And real estate inventory has been increasing slowly but surely, thereby making bidding wars less prevalent and necessary.

But while home price gains have been slowing, as evidenced by the aforementioned data, that doesn't mean we're back to pre-pandemic levels. Not even close. June's numbers mean that during that month this year, home prices were 18% higher than they were in June of 2021. And while that represents lower home price gains than in May, it doesn't mean homes are now affordable.

In fact, one major disadvantage for buyers today is higher mortgage rates. Last year, it was possible to sign a 30-year mortgage at under 3%. Recently, the average 30-year loan came in at over 6%. Since the typical buyer needs a mortgage to finance a home purchase, that puts those looking to purchase a home in a really tough position.

Should you put your homeownership plans on hold?

If you're in a stable housing situation -- you can afford your rent, or you own a starter home you haven't completely outgrown -- then it could certainly pay to hold off on buying a home for at least a few more months. We've seen real estate inventory steadily tick upward over the past number of months. If that trend continues, it should help drive home prices downward.

Now if you're worried that waiting to buy will mean getting stuck with a higher mortgage rate, the reality is that that's a risk you'll have to take. It's hard to predict where mortgage rates will be in a few months. But remember, we're at a point now where borrowing rates are high. And so if they rise modestly, it may not make a huge difference.

On the other hand, if home prices drop substantially, you could come out ahead financially even if it ends up costing you a little more to finance your home purchase. So that's something to keep in mind as you weigh your options.