Kiplinger’s Economic Outlooks are written by the staff of our weekly Kiplinger Letter and are unavailable elsewhere. Click here for a free issue of The Kiplinger Letter or to subscribe for the latest trends and forecasts from our highly experienced Kiplinger Letter team.
Home price gains continue to ease as lofty prices and elevated mortgage rates are still fueling affordability challenges. The S&P CoreLogic Case-Shiller U.S. National Home Price Index, which measures the price of existing homes across the nation, rose 2.3% in May from a year earlier, down from a 2.7% annual gain in the previous month. On a month-over-month, seasonally adjusted basis, home prices fell 0.3%. While affordability challenges continue to weigh on demand, a limited supply of homes for sale is supporting continued price growth, albeit at the slowest pace since July 2023. New York reported the strongest gains over the previous year, followed by Chicago and Detroit. Homes prices in Tampa fell 2.4%, the weakest return in the 20 cities covered by the index.
A drop in building permits points to a slowdown in single-family construction. Total housing starts rose 4.6%, to 1.321 million annualized units, in June. The increase was largely driven by a 30% jump in multifamily starts. Regionally, total starts rose in the Northeast and fell in the Midwest, the West and the South. Single-family starts fell 4.6%. A downtrend in single-family permits points to the trajectory of new-home construction over the coming months. Single-family permits notched their fourth consecutive decline, falling 3.7% in June, while multifamily permits climbed 7.3%. The decline in single-family permits indicates that builders continue to deal with high financing costs, elevated economic uncertainty and unfavorable supply conditions due to the volatile U.S. trade policy under the Trump administration. Meanwhile, affordability challenges are boosting rental demand and supporting a turnaround in multifamily development. As mortgage rates remain elevated, builders have stepped up their use of mortgage rate buydowns and other incentives to soften the impact of higher rates. That said, builders are also becoming more cautious, on account of rising uncertainty due to the impact of tariffs on the industry.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
New-home sales continue to struggle, despite builders cutting prices. New-home sales rose 0.6% in June to a seasonally adjusted annual rate of 627,000 units. Mortgage rates hovered around 7% for most of June. Stubbornly high mortgage rates, along with the rising inventory of existing homes and cooling price gains, show that builders of single-family homes are facing mounting headwinds. The median price of a new home now stands at $401,800, down 4.9% from a year ago. While the new-home market has been less sensitive to changes in mortgage rates, thanks to the incentives offered by builders, rates staying above 6% will likely continue to discourage some buyers in the months ahead. The inventory of new homes has risen 8.5% over the past 12 months. At the current sales pace, that inventory would last 9.8 months.
Elevated mortgage rates are still weighing on existing-home sales. These sales fell 2.7%, to 3.93 million annualized units, in June, as buyers contended with elevated financing costs, high home prices and relatively low inventories. Housing supply has made a meaningful recovery during the past couple of years as housing market conditions have shifted to a lower gear from the highly competitive postpandemic buying frenzy. Although the number of homes on the market is still below prepandemic levels, inventory has fully normalized on a months-of-supply basis. The total inventory of existing homes on the market rose 15.9% in June from a year ago. This translates to 4.7 months of supply at the current sales pace, up from 4.6 months in May. Inventory is now at the highest level since May 2020.
Related content
-
How to Navigate Your Medicare Advantage Plan in a DisasterIf you're a Medicare Advantage member in an area that has been impacted by a disaster, you might be worried about access to care and medicine. Here's what you need to know.
-
Older Investors: Boost Your Savings and Retire EarlierThis one measure can help older investors retire up to two years earlier and potentially double their retirement savings.
-
Big Changes Are Ahead for Higher EdThe Kiplinger Letter A major reform of higher ed is underway. Colleges are bracing for abrupt change, financial headwinds and uncertainty.
-
Breaking China's Stranglehold on Rare Earth ElementsThe Letter China is using its near-monopoly on critical minerals to win trade concessions. Can the U.S. find alternate supplies?
-
What New Tariffs Mean for Car ShoppersThe Kiplinger Letter Car deals are growing scarcer. Meanwhile, tax credits for EVs are on the way out, but tax breaks for car loans are coming.
-
AI’s Rapid Rise Sparks New Cyber ThreatsThe Kiplinger Letter Cybersecurity professionals are racing to ward off AI threats while also using AI tools to shore up defenses.
-
Blue Collar Workers Add AI to Their ToolboxesThe Kiplinger Letter AI can’t fix a leak or install lighting, but more and more tradespeople are adopting artificial intelligence for back-office work and other tasks.
-
America's Surprising Strengths in Manufacturing and ExportsThe Kiplinger Letter Despite common perceptions that the U.S. doesn't build things anymore, American factories are still hard at work. A special report from The Kiplinger Letter.
-
AI Goes To SchoolThe Kiplinger Letter Artificial intelligence is rapidly heading to K-12 classrooms nationwide. Expect tech companies to cash in on the fast-emerging trend.
-
The Economic Impact of the US-China Trade War
The Letter The US-China trade war will impact US consumers and business. The decoupling process could be messy.
