Home prices rose 0.6% in July, holding their own amid high mortgage rates and a low supply of houses for sale, according to the S&P CoreLogic Case-Shiller Index released on Tuesday.

On an annual basis, the national index is now up 1% from a year ago. Chicago, Cleveland and New York led the metropolitan areas with the strongest gains, with increases of 4.4%, 4% and 3.8%, respectively.

“U.S. home prices continued to rally in July 2023,” said Craig J. Lazzara, managing director at S&P DJI. “Although the market’s gains could be truncated by increases in mortgage rates or by general economic weakness, the breadth and strength of this month’s report are consistent with an optimistic view of future results.”

Selma Hepp, chief economist for CoreLogic, added that monthly increases were evening out as the combination of low inventory and high mortgage rates affect affordability.

“After a strong, 5% cumulative U.S. home price gain since the early spring, monthly increases are plateauing to a seasonal average, which reflects the pressure that higher mortgage rates have put on affordability,” Hepp said. “As a result of the early 2023 growth, annual price appreciation should accelerate in the coming months before slowing again.

“Areas in the Midwest continue to lead the national gains given their relative affordability. Markets that saw home prices reset following the recent surge in mortgage rates are expected to see stronger gains over the next 12 months, particularly those in the West,” Hepp added.

While mortgage rates that have recently topped 8% for a 30-year fixed rate loan are dampening demand, a shortage of homes for sale is keeping prices high.

“Today’s S&P CoreLogic Case-Shiller Index showed that buyer demand continues to outmatch housing supply, creating upward pressure on home prices despite the fact that home purchase costs are taking up an outsized share of household incomes,” said Realtor.com Chief Economist Danielle Hale. “All three measures signaled higher home prices in July. National home prices were up 1.0% in the year, while the 10- and 20-city composite indices were up 0.9% and 0.1%, respectively.

“This month’s index data tracks May, June, and July, a period when mortgage rates neared 7% in mid-July, creating the second knock of a one-two blow to housing affordability,” Hale added. “Existing home sales, limited by low inventory as high costs cause many existing homeowners to stay put, have borne the brunt of the impact and continued to slip in July. At the same time, new home sales have started to recover as builders adapt and fill the gap created by the selling shortfall.”