In January, home prices experienced a cooling period, rising only 3.8% nationally compared to the previous year, as reported by the S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index. This is a decrease from December's growth of 5.6%.
Home prices have been on a downward trend for seven consecutive months, with the decline slightly smaller in January. This is likely due to a temporary drop in mortgage rates and a subsequent increase in sales.
The 10-city composite experienced a year-over-year increase of 2.5%, down from December's 4.4% growth. The 20-city composite also saw a 2.5% rise, a decrease from the 4.6% growth in the prior month.
Higher mortgage rates have contributed to the cooling of home prices. The popular 30-year fixed mortgage rate set numerous record lows during the first two years of the pandemic, briefly dipping below 2%. However, the rate has since increased dramatically. Since the fall, it has hovered in the high 6% range, with recent volatility due to several bank failures and the resulting strain on the overall banking industry.
Craig Lazzara, Managing Director at S&P DJI, stated in a release, "Despite this, the Federal Reserve remains focused on its inflation-reduction targets, which suggest that rates may remain elevated in the near-term." He continued, "Mortgage financing and the prospect of economic weakness are therefore likely to remain a headwind for housing prices for at least the next several months."
Year-over-year prices fell in San Francisco (-7.6%), Seattle (-5.1%), Portland, Oregon (-0.5%), and San Diego (-1.4%). Prices remained stable in Phoenix.
Miami, Tampa, and Atlanta experienced the most significant annual price gains among the top 20 cities. In Miami, prices rose by 13.8%, while Tampa saw a 10.5% increase, and Atlanta's prices climbed by 8.4%. However, all 20 cities reported lower prices in the year ending January 2023 compared to the year ending December 2022.
Homebuyers may find sellers more accommodating this spring, but the availability of homes for sale remains limited. Additionally, mortgage lending may tighten due to pressure on the banking system.
Hannah Jones, an economic data analyst for Realtor.com, said, "More expensive, less available borrowing, especially with an unclear economic outlook, is likely to continue to limit buyer demand. Though home sales are expected to rebound in line with seasonal trends, this spring's sales pace is expected to remain lower than last year, as uncertainty and high costs limit activity."
This slowdown in home prices may signal a shift in the housing market, as buyers continue to face challenges from elevated mortgage rates and a limited supply of homes. While the market is expected to follow seasonal trends, the ongoing uncertainty and high costs will likely keep sales at a slower pace than in previous years. However, the situation remains fluid, and it will be essential to monitor the market closely for further developments.
