Annual home price growth remains accelerated

Home prices declined minimally between December and January, which some see as a sign that some cooling is on the horizon. But they still increased dramatically compared to one year ago.

Both the S&P CoreLogic Case-Shiller National Home Price Index, as well as data from the Federal Housing Finance Agency found prices declined 0.1% on a month-to-month basis.

This is the first monthly decrease in the FHFA index since August 2022, but year-over-year price growth remained near the historical average, said Anju Vajja, deputy director of the Division of Research and Statistics, in a press release.

Compared with January 2023, the FHFA index was 6.3%, with all regions of the country reporting price gains, ranging from 3.8% in the West South Central states, to 8.7% in the East North Central. Other regions reporting large price gains were the Middle Atlantic at 8.6%; New England, up 8.4%; and West North Central, 7.1%.

West North Central was the only region with a big month-to-month increase, at 1.5%. The largest decrease was in the South Atlantic region, down 0.6%.

Meanwhile, the S&P Case-Shiller data showed prices nationwide increasing 6% year-over-year in January, up from a 5.6% gain in December.

On a month-to-month basis, this index has declined for three consecutive periods.

Its 10-city composite increased 7.4% annually compared with 7.4% in December, while the 20-city index increased 6.6%.

"We've commented on how consistent each market performed during 2023 and that continues to be the case," said Brian Luke, head of Commodities, Real & Digital Assets at S&P Dow Jones Indices, in a press release Tuesday. "Homeowners most likely saw healthy gains in the last year, no matter what city you were in, or if it was in an expensive or inexpensive neighborhood."

But looking at the monthly changes, home prices were affected by increased borrowing costs as mortgage rates rose, Luke continued.

Only three markets increased month-to-month: San Diego rose 1.8%; Washington, up 0.5%; and Los Angeles at 0.1%.

Recent reports of increased home sales listings are welcome and a sign that the market is normalizing, said Selma Hepp, chief economist at CoreLogic.

"While elevated mortgage rates continued to freeze housing market activity over the winter, an unthawing is in sight, with improvements in for-sale inventory offering more opportunities for potential buyers across the country," Hepp said in a statement. "With spring's arrival, home prices are likely to show a seasonal uptick, although the annual acceleration in gains will slow compared with the strong 2023 spring."

Prices should rise another 3% to 4% this year, Hepp said in a follow up statement.

A decline in the pace of home price gains would be welcome, as potential buyers are caught in an affordability crunch.

The typical American family earns nearly $30,000 less ($29,448) than it needs to afford a median priced home during February, a Redfin report issued March 26 found.

This is actually an improvement compared with October, when the deficit was $40,810.

A Redfin analysis of February data found that a buyer needed to earn an annual income of $113,520 to afford the median-priced U.S. home of $412,778. That's 35% more than the $84,072 median household income.

"We're slowly climbing our way out of an affordability hole, but we have a long way to go," Elijah de la Campa, senior economist at Redfin, in a press release. "Rates have come down from their peak, and are expected to fall again by the end of the year, which should make home buying a little more affordable and incentivize buyers to come off the sidelines."

The amount of income needed to buy a home was up 12% from February 2023, 39% over the same month in 2022 and 74% three years ago.

The lack of affordability made it cheaper to rent than to buy a home in the nation's 50 largest metro areas, Realtor.com's Rental Report said.

The mortgage payment on a starter home located in the largest metros cost on average $1,027, or 60.1%, per month more than rent. Rent price growth is slowing, CoreLogic reported recently.

"The financial scales have tipped monthly costs in favor of renting over buying, but it does not bring the benefit of housing wealth gains over time that owning does and movers should consider their long-term housing plans and personal situation as they make this decision," said Danielle Hale, chief economist at Realtor.com, in a press release.