Kiplinger Housing Outlook: Home Price Growth Slows

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 Home prices continue to rise but at a slower pace. The S&P CoreLogic Case-Shiller National Home Price Index, which measures the price of existing homes across the nation, rose 6.3% in April from a year earlier, down from a 6.5% annual gain in the previous month. The monthly pace of appreciation also slowed from the previous month. On a month-over-month, seasonally adjusted basis, home prices rose 0.3% — the 15th consecutive monthly increase. Base effects in the home price index mean the annual rate will continue to slow in the coming months, as the average monthly price gain in the spring and summer last year was unusually strong at 0.7%.

Residential construction is slowing down. Total housing starts fell 5.5% in May, to 1.277 million annualized units — the slowest annualized pace in four years. Single-family starts fell 5.5%, while multifamily starts declined 6.6% during the month. Single-family permits fell 2.9%, while multifamily permits dropped 5.6%. Single-family starts sank to a seven-month low, while single-family permits fell for the third consecutive month. This suggests the recovery in single-family construction that started in 2022 may be fading. That said, the low inventory of existing homes should continue to encourage the construction of these homes, albeit at a slower pace than over the past year.

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New home sales fell again in May. They dropped 11.1% to a seasonally adjusted annual rate of 619,000 units — the weakest pace since November 2023. The new-home market has softened recently due to higher mortgage rates, increased availability of existing homes and a more moderate pace of economic growth. The supply of new homes for sale rose 1.5% from the previous month — the 10th consecutive monthly increase. The median price of a new home was basically unchanged in May from the previous month and is down 0.9% from a year ago. A rising supply of new homes, as well as more builders using price incentives to entice buyers, should continue to weigh on new home prices this year. 

Existing home sales were basically flat in May, edging down 0.7% to 4.11 million annualized units for the month, the third consecutive decline. The modest decline in May largely reflects the rise in mortgage rates that started at the end of February. Relatively low sales levels show that affordability concerns continue to undercut demand for existing homes. Meanwhile, the inventory of existing homes on the market rose 18.5% from a year ago. This translates to 3.7 months of supply at the current sales pace, up from 3.5 months in April. Inventory will likely continue to increase over the next few months as mortgage rates drift lower. Sales may turn a corner later this year once the Federal Reserve begins cutting interest rates, bringing mortgage rates closer to 6%. The average 30-year, fixed mortgage rate was 6.86% at the end of June.  

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