Home Prices Cooled in May. Where They Are Falling the Most.

One recent forecast foresees home price growth continuing to slow through the end of the year and remaining flat in 2026. (PATRICK T. FALLON/AFP via Getty Images)

Home prices continued to cool in May as high financing costs subdued demand. But in some places, prices are already dropping.

Home prices nationally rose 2.3% from the year prior, slower than the 2.7% annual gain in April, according to the S&P CoreLogic Case-Shiller home price indices. An index tracking price changes in 20 of the nation’s large metropolitan areas rose 2.8%, slower than its 3.4% increase the month prior and shy of FactSet consensus estimates that predicted a 3% rise.

“With affordability still stretched and inventory constrained, national home prices are holding steady, but barely,” Nicholas Godec, S&P Dow Jones Indices’ head of fixed income tradeables & commodities, said in a statement. Annual price gains slowed for the fourth month in a row in May, he noted.

Home price gains are expected to peter out nationally in the coming years. The Mortgage Bankers Association expects that prices measured by the FHFA Home Price Index will end the year 1.3% higher, and grow 0.3% by the end of 2026 as mortgage rates remain above 6%.

Home financing costs, which have largely remained lodged just under 7%, will be a determinant of both home demand and prices in the coming months. But it isn’t the only factor, Godec said in a statement.

“The slowdown is now more than just a story of higher mortgage rates,” he said. “It reflects a market recalibrating around tighter financial conditions, subdued transaction volumes, and increasingly local dynamics.”

Whether or not home buyers and sellers notice the difference depends on where they live. Prices measured by the Case-Shiller index in May fell the most in Tampa, dropping 2.4%. They fell 0.6% in both Dallas and San Francisco, and were about flat in Denver.

Prices in northeastern and Midwestern metros, meanwhile, outpaced the national average. Prices rose the most in New York, gaining 7.4% from the year prior. Prices in Chicago grew 6.1%, while those in Detroit rose 4.9%.

The Case-Shiller index is closely watched because of its methodology, which is based on repeat home sales and is designed to negate the effect of home size or type on sale price. But it lags behind other, less comprehensive, measures, like the National Association of Realtors’ existing-home sales report or data published by private companies.

The Realtor group’s existing-home sales report earlier this month shows that prices continued to increase in June—the median sale price, $435,300, was 2% higher than one year prior and a record high.

But that positive reading obscures some of the housing market’s big regional differences. “Naturally, there is a number of markets which are probably negative,” noted Lawrence Yun, the National Association of Realtors’ chief economist, during a recent press conference.

Indeed, home buyers shopping for a house on the coast of Lake Erie will have a much different experience than those looking along the Gulf Coast, Zillow data show. Of the 100 largest metropolitan areas with home sale price data in June, those in the Toledo, Ohio, metropolitan area rose the most.

Homes in the northern Ohio city sold for a median near $202,000, up 18.6% from one year prior, according to Zillow’s June sale price estimates. Pricing momentum wasn’t far behind in Akron, Ohio, and Rochester, N.Y., where they increased 12.4% and 11.2% from the year prior, respectively. Of the 10 locales where home prices rose the fastest, nine were in the Midwest or northeast.

The same can’t be said for southern and western locales. Of the 16 metros in which prices fell from year-ago levels, 11 were located in a southern state, while the rest were in the west. North Port, Fla., saw the greatest decline, at 12.1%, followed by Boise, Ida., with a 7.6% drop. Durham, N.C., and Tampa, Fla., followed, with prices dropping 4.3% in both.

Write to Shaina Mishkin at shaina.mishkin@dowjones.com