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Home prices rose to another all-time high in July. The S&P CoreLogic Case-Shiller U.S. National Home Price Index, which measures the price of existing homes across the nation, rose 5% in July from a year earlier, which was actually down from a 5.5% annual gain in the previous month. On a month-over-month, seasonally adjusted basis, home prices rose 0.2%. The monthly gain in July follows a string of modest gains in recent months, pulling the pace of house price appreciation down to a nine-month low. A limited supply of homes for sale is supporting continued price gains, but low housing affordability is weighing down on the pace. Base effects in the home price index mean the annual rate of price increases will continue to slow in the coming months, as the average monthly price gain in the summer and fall of last year was unusually strong.
Lower mortgage rates are improving residential construction’s outlook. Total housing starts jumped 9.6%, to 1.237 million annualized units in August. Single-family starts rose 15.8%, while multifamily starts dipped 4.2% during the month. The jump in single-family starts suggests home builders are feeling more confident they will be able to sell a lot of their inventory following the recent sharp drop in mortgage rates. Multifamily starts are down sharply over the past year, alongside softer apartment market fundamentals and tighter credit conditions. Single-family building permits rose 2.8%, while multifamily permits rose 8.4%. 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 for the rest of the year, as builders focus on completing projects; multifamily completions rose in August to their highest level on record.
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New-home sales declined in August, but they remain solid. They fell 4.7 % in August, to a seasonally adjusted annual rate of 716,000 units. The new-home market has softened recently amid still-high mortgage rates, increased availability of existing homes and a more moderate pace of economic growth. The supply of new homes for sale rose 1.7% from the previous month. At the current sales pace, that inventory would last 7.8 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. Lower mortgage rates should eventually provide a boost to new-home sales, but affordability challenges and a softer labor market will likely limit the rebound.
Elevated mortgage rates are driving existing home sales back to their slowest pace since late 2023. Sales of previously owned homes fell 2.5% to 3.86 million annualized units in August. The monthly decline largely reflects the rise in mortgage rates that started at the end of February and continued through July. Although mortgage rates have fallen substantially in recent weeks, rates at the time of contract signings in June and July were still running near 7%. Relatively low sales levels this year show that affordability concerns are undercutting demand for existing homes. Although inventories have improved over the past year, the availability of existing homes on the market remains quite low. The total inventory of existing homes on the market rose 22.7% from a year ago. This translates to 4.2 months of supply at the current sales pace, up from 4.1 months in July. Sales will likely begin turning a corner later this year, now that the Federal Reserve has started cutting interest rates, bringing the average 30-year fixed mortgage rate to 6.08% at the end of September.
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