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Home prices continue to push higher, but at a slower pace. The S&P CoreLogic Case-Shiller U.S. National Home Price Index, which measures the price of existing homes across the nation, rose 2.7% in April from a year earlier, down from a 3.4% annual gain in the previous month. On a month-over-month, seasonally adjusted basis, home prices fell 0.4%. While low affordability continues to weigh on demand, a limited supply of homes for sale is supporting continued price growth, albeit at the slowest pace since August 2023. New York reported the strongest price gains over the year, followed by Chicago and Detroit. Homes prices in Tampa fell 2.15%, the weakest return in the 20 cities covered by the index.
A drop in building permits points to a slowdown in residential construction. Total housing starts fell 9.8%, to 1.26 million annualized units, in May. The decline was largely driven by a 29.7% drop in multifamily starts. Regionally, total starts rose in the Midwest and fell in the Northeast, the West and the South. Single-family starts rose 0.4%. A downtrend in single-family permits points to the trajectory of new-home construction over the coming months. Single-family permits fell 2.7%, while multifamily permits decreased 0.8%. The decline in building 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. 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, due to rising uncertainty about the impact of tariffs on the industry.
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New-home sales plummeted in May as buying conditions worsened. They fell 13.7% to a seasonally adjusted annual rate of 623,000 units, the weakest pace in seven months. Mortgage rates almost reached 7% in May. Stubbornly high rates, along with the rising inventory of existing homes and cooling house-price growth, show that builders are facing mounting headwinds. The median price of a new home now stands at $426,600, up 3% from a year ago. While the new-home market has been less sensitive to changes in mortgage rates, thanks to the borrowing 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 8.1% over the past 12 months. At the current sales pace, it would last 9.8 months.
The rising inventory of homes on the market is helping existing-home sales, which rose 0.8%, to 4.03 million annualized units, in May. But existing-home sales continue to run at a slow pace as buyers contend with elevated financing costs, high home prices and low inventories when compared with prepandemic levels. Mortgage applications, which lead sales by a month or two, rose in May and June, indicating that existing-home sales may pick up a bit more in the second half of the year, even if they remain low by historical standards. The total inventory of existing homes on the market rose 6.2% in May from a year ago. This translates to 4.6 months of supply at the current sales pace, up from 4.4 months in April. Inventory is now at the highest level since June 2020.
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