Higher mortgage rates lower house prices not increase them, but this month is an exception. The Case Shiller 20 City August closing data released on October 29 is based on June price negotiations. The 30 year mortgage rate began to increase in June, up 0.5% from the previous month to 4.1%. But after falling 70% in the previous 4 months, prices went up from an annual rate of 7.5% to 11.8% in the June negotiations. This is illustrated in the graph below. The most likely explanation is the rush to buy before mortgage rates go even higher drove prices higher.
The Case Shiller year over year comparison is up 12.8% - a six year high. If the monthly increase next month remains the same as this month’s 11.8% annual rate the year over year will be 13.2%. If it drops to the last months 7.5% rate it will remain at 12.8%.
The mortgage rate for July negotiations will increase by 0.3% to 4.4% so there could be a similar increase next month. That should be the end of price acceleration. The higher mortgage rates will add to the down ward trend so prices will be falling by the January 28 report.