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Annual house price growth is now in the single digits, for the first time since late 2020.
The surge in house prices during the COVID-19 pandemic sent home values well above the peak hit during the housing bubble that led to the Great Recession. Price gains, however, started to slow down in April. The S&P CoreLogic Case-Shiller National Home Price Index (opens in new tab) rose 9.2% in October from a year ago, down from 10.7% in the previous month. Mortgage financing has become more expensive as the Federal Reserve started hiking interest rates to bring inflation under control. With home affordability at its worst since the mid-1980s, credit conditions are set to continue to tighten in the coming months. House price growth likely slowed to 7% annually by the end of 2022.
Residential construction continued to weaken in November.
1.427 million annualized units, and are now down 32% since February when mortgage rates started to rise. Single-family starts fell 4.1%, while multifamily starts rose 4.9% for the month, bouncing back after two months of declines. Multi-family starts have been strong in 2022 amid low apartment vacancy rates. Total housing permits, which lead starts by a month or so, plummeted 11.2%. Single-family permits fell for the ninth month in a row. Much of the weakness in building permits and starts in 2022 was concentrated in single-family units, as builders shelved plans to break ground on new projects amid soaring mortgage rates and elevated business spending on building materials. Single-family units currently under construction declined for the sixth consecutive month.
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New home sales likely fell around 16% in 2022.
Sales rose 5.8% in November to a seasonally adjusted annual rate of 640,000 units. New home sales are down 15.3% over the past year. The inventory of new homes fell in November, but it is up 18.2% from a year ago. Sales were mixed at the regional level, with the overall increase driven by gains in the West and the Midwest.
Existing home sales have further to fall and were likely down 15% in 2022.
Sales of previously owned homes fell 7.7% in November. Existing-home sales have fallen every month since February and are down more than 35.4% from a year ago. The run-up in mortgage rates has chilled buying activity, and increased economic uncertainty appears to be holding back both home buyers and sellers. A gradual improvement in affordability as house prices fall and mortgage rates decline should allow existing-home sales to recover by the end of 2023.
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