Kiplinger Housing Outlook: Home Prices Continue to Rise

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Home price growth accelerated again in January. S&P CoreLogic Case-Shiller National Home Price Index, which measures the prices of existing homes across the nation, rose 6% from a year earlier, after a 5.6% gain the previous month. On a month-over-month, seasonally adjusted basis, home prices rose 0.4% — the 12th consecutive monthly increase. The fairly large gain in house prices in January points to a rebound in price growth driven by the fall in mortgage rates at the end of last year. Looking ahead, the inventory of existing homes will stay low, which will push home prices higher as demand partially recovers from last year, thanks to modestly lower borrowing costs.

Residential construction jumped in February. Total housing starts rose 10.7%, to 1.52 million annualized units in February. Single-family starts rose 11.6%, while multifamily starts increased 8.3% during the month. Single-family permits rose 1.6% from the previous month, while multifamily permits fell 7.9%. Single-family permits rose to a 21-month high. The gains in single-family permits and the increase in builder confidence in recent months suggest that single-family construction will continue to gradually increase in the coming months. Builders are expecting a steady stream of buyers coming from the existing home market, where inventory is much tighter. Apartment vacancy rates have turned higher over the past year as demand has continued to normalize and the supply of new multifamily developments has continued to increase. Multifamily developers in most markets are likely to focus this year on completing units under construction, rather than breaking ground on new developments.

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New home sales slipped in February. They fell 0.3% to a seasonally adjusted annual rate of 662,000 units. Sales rose in the South and West but fell in the Northeast and Midwest. The supply of new homes for sale rose 1.3% from the previous month, bringing inventory to its highest level since October 2022. The median price of a new home fell 3.5% in February from the previous month and is now 7.6% lower than a year ago. The rising supply should weigh on prices, even as builders are pulling back on offering buyer incentives and price cuts, according to a recent survey conducted by the National Association of Home Builders. The low inventory of existing homes means that demand for newly built homes will stay robust in 2024.

Existing home sales rose in February, due in part to lower mortgage rates. Sales of previously owned homes rose 9.5% to 4.38 million annualized units for the month. That increase was the largest monthly gain since February 2023. The rise largely reflects the fall in mortgage rates across November and December, which brought more buyers and sellers into the market. Existing home sales are counted at the closing of a contract, so the sales in February likely reflect contracts signed in the previous two months. 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 5.9% from a year ago. This translates to 3.2 months of supply at the current sales pace, down from 3.4 months in January. Inventory will increase slightly over the next few months as lower mortgage rates entice more homeowners to put their homes on the market. But even so, it’s going to remain a seller’s market in most areas as inventories remain relatively low.

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