US home prices have been declining steadily for the past seven months, a sign that the housing market is contracting as the Federal Reserve raises interest rates to combat inflation. The new Case-Shiller indicator which will be released on Tuesday, is expected to show further decline in home prices. 

April’s report will show home prices for February 2023, as the Case-Shiller indicator tracks the price of single-family homes over a three month period in the nation’s 20 largest metropolitan areas.

Here are five things you need to know about the upcoming Case-Shiller report:

  1. Home Prices Slide Further

Tomorrow’s report will be in line with economists’ expectations as they say home prices will keep sliding. Nationally, January’s report showed a 0.2% decline in monthly home prices after seasonal adjustments, down by almost 3% since its peak in June 2022. 

Home prices are up 3.8% annually, down from 5.6% in the previous month.

Economists predict that home prices and sales will be affected by the interest rate hikes, mortgage rates and total home inventory available to homebuyers. 

“We’re expecting additional incremental declines in house prices through year end,” said Jonathan Millar, senior economist at Barclays Investment Bank. 

2. Banking Collapse On Hold For Now

Tuesday’s report is less likely to show the after-effects of the Silicon Valley Bank & other bank collapses that took place in early March. But going forward, it will lead to tighter lending activities, affecting home loans and mortgages. 

Many people are worried that banks will now be careful with who they lend to, because of the credit crunch they face due to tighter policies from Federal regulators. 

There will be negative effects from these collapses on the housing market, but the degree of it remains to be seen. Economists say that mortgages inside the conforming limit will be shielded from the banking fiasco under the Federal Housing Finance Agency rules. 

3. Uncertainty Around Mortgage Rates

Mortgage rates have been steadily climbing since their lowest in January 2021, hitting an all time high of 7.08% in October 2022. These rates are highly sensitive to the Federal Reserve’s interest rate hikes. Economists are uncertain about mortgage rates as the Fed plans on hiking rates at least once more in May. Mortgage rates were consistently higher than 6% since mid-September 2022.

A mortgage rate is defined as the rate of interest charged by a mortgage lender, like banks. According to the Federal Reserve Economic Data (F.R.E.D.), the latest non-seasonally adjusted mortgage rate is 6.4%.

Home prices are inadvertently affected by these high mortgage rates as existing homeowners who locked their homes at close to 3% are hesitant to sell in exchange for homes at more than 6% mortgages.

4. Single-family home construction activity will slow down

Due to low demand for homes in major parts of the US at the moment, builders and contractors are refraining from building single family homes at the same rate. Existing home sales jumped 14.5% to a seasonally adjusted rate. However, yearly home sales are down by 23%.

On the other hand, construction of multi-family homes like apartments and condos is still on the rise. According to the National Association of Realtors, there are more multifamily than single family homes under construction. This is good news for long-term renters, as an excess of vacant rental spaces will effectively bring down overall rents in the region.

5. Winners and losers

Home prices are fast gaining momentum in the Southern and Midwestern regions of the US. Cities like Miami, Tampa, Charlotte and Atlanta are posting the strongest annual gains so far and will continue to dominate the charts. Miami gained 13.8%, the highest of all 20 major US cities. Tampa gained 10.5%, with Atlanta and Charlotte both showing more than 8%.

In stark contrast cities like Seattle, San Diego, Portland and San Francisco home prices have declined the most. Prices in San Francisco dropped by almost 8% in one year, with Seattle at a close second of 5%.