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Home-price gains keep slowing down. The S&P CoreLogic Case-Shiller U.S. National Home Price Index, which measures the price of existing homes across the nation, rose 3.9% in September from a year earlier, down from a 4.3% annual gain in the previous month. On a month-over-month, seasonally adjusted basis, home prices rose 0.3%. A limited supply of existing homes for sale is supporting continued price appreciation, but low housing affordability is weighing on the pace of price gains. Financing costs are likely to stay elevated at around 7% over the next few months, which means that buyers and sellers will both continue to deal with challenging conditions in the housing market.
Apartment construction continues to downshift. Total housing starts fell 3.1%, to 1.311 million annualized units in October. Single-family starts dipped 6.9%, while multifamily starts jumped 9.6% during the month. Hurricanes Helene and Milton, which ripped through parts of the Southeast in September and October, played a significant role in the monthly pullback in residential construction. Single-family starts have improved this year, and are still up 9.3% since the start of the year. Multifamily starts are down 29.3% over the same period. Single-family permits rose 0.5% in October, while multifamily permits fell 3%. The low inventory of existing homes should continue to encourage new construction of single-family homes, albeit at a slower pace than over the past year. Meanwhile, multifamily construction will remain weak over the next few months. Builders are focused on completing existing projects, as rising apartment vacancies and elevated borrowing costs discourage new development.
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New-home sales fell sharply in October, down 17.3% to a seasonally adjusted annual rate of 610,000 units — the slowest sales pace since November 2022. Much of the slowdown can be attributed to a drop in new-home sales in the South, related to the hurricanes. The bounce in November’s home builders’ housing market index signals a modest rebound in sales over the next few months, as the scant supply of existing homes and pricing incentives from builders continue to support demand for new houses. The supply of new homes for sale rose 8.8% from a year ago. At the current sales pace, that inventory would last 9.5 months. Although still far from the highs reached in 2008, the ratio of new-home inventory to sales remains more elevated than in the existing-home market.
Existing-home sales will continue to struggle, despite the modest increase in October. Sales of previously owned homes rose 3.4% to 3.96 million annualized units in October. The total inventory of existing homes on the market rose 19.1% from a year ago. This translates to 4.2 months of supply at the current sales pace, down from 4.3 months in September. Relatively low sales levels this year show that affordability concerns are undercutting demand for existing homes. The drop in mortgage applications in October, which is usually a bellwether for future home sales, suggests the sales rebound in October likely was not the beginning of a lasting recovery. Mortgage rates have started rising again, with the average 30-year, fixed mortgage rate now at 6.81%. This means that borrowing costs will remain around current levels through the first half of 2025.
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