Home prices increased at the fastest clip since 2022 at the start of the year, according to one closely watched home price gauge published Tuesday.
Home prices nationally in January were 6% higher than the same month in 2023, according to S&P CoreLogic Case-Shiller data. Prices in an index measuring changes in 20 of the nation’s large cities increased 6.6%.
Both indexes increased at the quickest annual pace since November 2022.
Seasonally adjusted prices also gained, with the 20-city index rising 0.14% from December, and the national index gaining 0.36%.
“U.S. home prices continued their drive higher,” Brian D. Luke, head of commodities, real and digital assets at S&P Dow Jones Indices, said in a statement. “On a seasonal adjusted basis, home prices have continued to break through previous all-time highs set last year.”
The quick annual gain was expected. The 6.6% gain in the 20-city index was in line with the consensus call among economists surveyed by FactSet. Price gains will continue, but will slow by the end of the year, some economists say.
Prices were higher than year-ago levels in each of the 20 cities tracked by the index. Prices in San Diego, Los Angeles, and Detroit were highest compared to one year prior, rising 11.2%, 8.6%, and 8.2% respectively. The cities with the slowest gains included Dallas, Denver, and Portland, Ore., where prices grew 2.9%, 2.7%, and 0.9%, respectively.
A low supply of homes for sale, combined with a relatively easy comparison with prices at the same time last year, look set to keep prices strong this spring.
The median home in February sold for $384,500, up 5.7% from the same month in 2023, according to the National Association of Realtors. It was the greatest price increase in the trade group’s data set since October 2022.
Redfin data suggest prices have remained strong in March. Over the four-week period ended March 17, home-sale prices rose 5.3%.
Industry economists expect gains will slow later this year. The Mortgage Bankers Association estimates that home prices in the fourth quarter measured by the Federal Housing Finance Agency’s home price index will be 4.1% higher than one year prior—a slower growth rate than the anticipated 5.7% in the first quarter of this year.
Fannie Mae expects its home price index to be 3.2% higher than one year prior at the end of the year, slower than an anticipated 7.2% first-quarter increase.
That’s despite mortgage rates that remain higher than levels immediately before the pandemic. Higher rates and prices has made it harder for first-time buyers to enter the market. The share of buyers purchasing a previously owned home for the first time fell to 26% of all transactions in February from 28% the month prior, the National Association of Realtors said earlier this month.
The typical buyer in February needed an annual income of $113,520 to afford the median U.S. home, according to a Redfin analysis published Tuesday. That is nearly $30,000 more than the median household income, the brokerage said. The last time the typical household earned more than it needed to afford the median home was three years ago, in February 2021, according to the analysis.
Home values are stretched relative to their historic price-to-rent ratio, Mark Zandi, Moody’s Analytics’ chief economist, wrote in a Monday note. “That valuations have remained so high given the doubling in mortgage rates since just prior to the pandemic is especially surprising,” the economist wrote, adding that high home prices are supported by an undersupply of housing and the mortgage rate lock-in effect.
“For some semblance of normalcy to return to the housing market, something has to give—mortgage rates need to decline, incomes rise, and/or house prices cool considerably,” Zandi wrote. The most likely scenario is that prices move “more-or-less sideways” for one to three years. That would “allow corporate earnings and rents to catch up and valuations to normalize at least partially.”
Source: Barron's