Home prices are hitting new highs again, as high rates put the squeeze on supply
Prices began dropping last summer, after the average interest rate on the 30-year fixed-rate mortgage more than doubled in just six months. They continued to fall until January, when buyer demand returned but came up against very tight supply . Buyers may have simply gotten used to higher rates.

"Though the backward-looking annual growth rate dipped to 0.1%, May's exceptionally strong +0.7% month-over-month gain would equate to an annualized growth rate of 8.9%, suggesting the annual home price growth rate would remain at or near 0% for only a short time before inflecting and trending sharply higher in coming months," Walden added.

"There is no doubt that the housing market has reignited from a home price perspective," said Andy Walden, vice president of enterprise research at Black Knight.

The sharp jump in mortgage interest rates last year threw cold water on an overheated housing market, but it didn't last long. Even with rates still high, home prices are now gaining again, and the gains are accelerating with each new month.

Prices, which have been rising since January, were 0.1% higher in May than a year earlier.

"Earlier this year I shared that I believed 6% mortgage rates were accepted as the new normal. I think now we're in an environment where 7% mortgage rates are now the new normal, and people are accepting it," Robert Reffkin, CEO of Compass Real Estate said last week on CNBC's "Squawk on the Street."

By May, just over half of the nation's 50 largest housing markets, mostly in the Midwest and Northeast, had either returned to their prior price peaks or set new highs.

Home prices are still weaker in the West and in many of the cities deemed pandemic "boom towns," which had an influx of remote workers finding new homes during the earlier days of Covid.

But those prices are starting to firm up. Homes in San Jose, California, lost 10% of their value last year, but inventory is starting to fall again, and prices there are now reheating. They rose 1.4% in May, the second largest month-to-month increase of any market on a seasonally adjusted basis. San Diego, Los Angeles, San Francisco and Seattle also saw price growth in May, as well.

The one exception is Austin, Texas, one of the biggest pandemic boom towns.

"Inventory there continues to run above pre-pandemic levels, putting downward pressure on prices, which have fallen to -13.8% below peak, the largest gap of any market. Just eight of the top 50 markets are currently more than 5% below their 2022 peaks," Walden said.

In general, though, supply is declining again. New listings are down about 25% from a year ago, as homeowners with sub-4% mortgage rates are reluctant to sell their homes and potentially pay a much higher interest rate on another home. Total inventory is now about half of what it was just before the pandemic, which caused a massive housing boom.

Sales of pre-owned homes are still much weaker than they were a year ago, but that has less to do with higher costs and more to do with less supply. The median price of a pre-owned home in May was $396,100, according to the National Association of Realtors. Redfin, a real estate brokerage, reported last week that the average home is now selling just above its list price for the first time in nearly a year.

Bidding wars are clearly coming back, even if affordability is taking a hit. As of June 22, with 30-year rates at 6.67%, it required $2,258 per month in principal and interest to make the monthly payment on a median-priced home with 20% down and a 30-year mortgage, according to Black Knight. That is the highest such payment on record, marginally higher than the $2,234 required back in October.