The nine-month streak of steadily increasing housing prices in the U.S. has finally snapped.
After steadily declining for seven consecutive months in 2022, housing prices reversed course and increased for an even longer stretch of nine months in 2023 — until now. S&P CoreLogic’s latest Case-Shiller U.S. National Home Price NSA Index, released January 30, 2024, reports that home-price growth dropped in November 2023 for the first time since January — albeit only by a tiny 0.2 percent. Twelve of the 20 major metro markets measured by Case-Shiller reported month-over-month price decreases.
Index remains near all-time high
The slight month-over-month drop takes the Index down from its historic high, but not by much. “U.S. home prices edged downward from their all-time high in November,” said Brian D. Luke, head of commodities, real & digital assets at S&P DJI, in a statement. “The streak of nine monthly gains ended in November, setting the index back to levels last seen over the summer months.” The 10- and 20-city composites each also declined very slightly. Seattle and San Francisco were the cities that saw the largest monthly drops with declines of 1.4 percent and 1.3 percent, respectively.
However, despite November’s slight month-over-month drop, year-over-year growth is still on the rise. Six cities registered all-time highs in November: Miami, Tampa, Atlanta, Charlotte, New York and Cleveland. “November’s year-over-year gain saw the largest growth in U.S. home prices in 2023, with our national composite rising 5.1 percent and the 10-city index rising 6.2 percent,” Luke said.
Regional fluctuation continues
Detroit topped the list for highest percentage of price growth for the third month in a row, with an 8.2 percent gain, followed closely by San Diego at 8 percent. “Barring a late surge from another market, those cities will vie for the ‘housing market of the year’ as the best performing city in our composite,” Luke said.
Despite the top-performing markets being from the Midwest and West, the Northeast was the best-performing region overall with 6.4 percent gains. The Midwest is close behind with 6.3 percent, and the West had the slowest growth at 3 percent. “The tight disparity speaks to a rising tide across the country, with less evidence of micro-markets bucking the trend,” Luke said. “The days of markets in the South rising double digits with markets in the Midwest remaining flat are over.”
The Fed and the housing market
The Federal Reserve’s aggressive moves to combat inflation — with 10 consecutive rate hikes over 2022 and 2023 — have put upward pressure on mortgage rates. While the Fed doesn’t directly set mortgage rates, the mortgage market’s interpretations of the central bank’s moves influence how much you pay for your home loan.
The long period of low mortgage rates following the Great Recession came to an end in 2022. In June 2022, rates topped 6 percent for the first time since 2008. The upward trend continued through October, when rates topped rates topped 7 percent, then 8 percent. “The house price decline came at a time where mortgage rates peaked,” Luke noted.
Steve Reich, division president at Go Mortgage in Pennsylvania, highlights the impacts that these trends have on the housing market. “As the Fed worked to get inflation under control, higher interest rates tempered what many homebuyers could afford and, in turn, softened home sales,” he said in a statement.
Higher rates also exacerbate the housing shortage, stopping many homeowners from selling when they otherwise might — and thus keeping those homes off the market and out of the supply of available housing.
The remarkable rise in mortgage rates is acting as a kind of golden handcuffs.
— Mark Hamrick, Bankrate Senior Economic Analyst
“The remarkable rise in mortgage rates is acting as a kind of golden handcuffs,” says Mark Hamrick, Bankrate’s senior economic analyst. Higher rates are “limiting the desire and some of the ability of people to move out of the homes they currently own. That further pressures housing inventory, adding insult to supply injury.”
However, rates are now trending back downward. As of January 24, 2024, the average 30-year mortgage rate sat at 6.93 percent.
What it means for homebuyers and sellers
The current market has proved challenging on both sides of the real estate transaction — and unless we see a significant drop in either home prices or mortgage rates, both buyers and sellers will need to go with the flow. “For prospective sellers, the new status quo dictates they remain flexible on price, given the extraordinary challenges posed by the sharp increase in mortgage rates,” Hamrick says.
“Those who are very motivated to purchase a home should be prepared for the sticker shock associated with the increased expense of financing the purchase,” he continues. “Part of the flexibility that may be required includes seeking a possible downgrade of footprint or quality of home, along with the neighborhood, in order to achieve an affordable purchase.”
However, Reich emphasizes that buying a home in today’s market, while difficult, is still possible. “The average time active listings stay on the market is getting longer, resulting in a slightly less competitive market,” he says. National Association of Realtors data proves that out: The median days-on-market length was 29 days in December, up both month-over-month and year-over-year, which gives buyers more time to make an informed, well-considered decision. “And that’s good news for homebuyers who are still in the game.”
In fact, some industry experts are actually optimistic about the housing market in 2024. “It’s not much in degree, but [the fact] that the index fell in November after nine straight monthly increases could be another sign the housing market will rebound this year,” said Robert Frick, corporate economist with Navy Federal Credit Union. “Prices are still rising rapidly in some markets, and dropping quickly in others, but if more markets see price drops or even moderation, combined with lower mortgage rates, 2024 should be a healthy year for home sales.”
.jpg)
