Kiplinger Housing Outlook: Home Prices Continue to Rise

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Home price growth continues to pick up amid a shortage of homes for sale. The S&P CoreLogic Case-Shiller National Home Price Index, which measures the prices of existing homes across the nation, rose 6.4% in February from a year earlier, after a 6% gain the previous month. On a month-over-month, seasonally adjusted basis, home prices rose 0.4% — the 13th consecutive monthly increase. The fairly large gain in house prices in February points to a rebound in price growth driven by the fall in mortgage rates that started at the end of last year. While the dip in mortgage rates to below 7% was short-lived, it helped house prices rise at the fastest pace since November 2022. Looking ahead, the inventory of existing homes for sale will stay relatively low. That will push home prices higher this year as demand remains steady, even as mortgage rates start rising again.

Residential construction plummeted in March. Total housing starts fell 14.7%, to 1.32 million annualized units. Single-family starts fell 12.6%, while multifamily starts declined 21.7% during the month. Single-family permits fell 5.7% from the previous month, while multifamily permits fell 1.2%. March was the first month that single-family permits posted a monthly decline since November 2022. The broad-based decline in permits suggests builders and developers are becoming less optimistic about future demand, given persistent inflation and the prospect of interest rates staying higher for longer. That said, builders are expecting a steady stream of buyers coming from the existing home market, where inventory is much tighter. This, along with sturdy economic growth, means single-family construction will gradually improve over the course of the year.

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New home sales recovered in March, jumping 8.8% to a seasonally adjusted annual rate of 693,000 units. Sales rose across all regions in the U.S. The supply of new homes for sale rose 1.3% from the previous month — the eighth consecutive monthly increase. The median price of a new home rose 6% in March from the previous month and is down just 1.9% from a year ago. A rising supply of new homes should weigh on prices, even as builders pull back on offering buyer incentives and price cuts, according to a recent survey conducted by the National Association of Home Builders (NAHB). If mortgage rates continue to increase, builders may be forced to step up the use of incentives again.

Existing home sales dropped in March, due in part to higher mortgage rates. Sales of previously owned homes fell 4.3% to 4.19 million annualized units for the month. That decline appears to be payback after the solid gains posted in the first two months of 2024, which were brought on by increased supply and a temporary dip in mortgage rates. The sales decline in March largely reflects the rise in mortgage rates that started at the end of February. Relatively low sales levels show that affordability concerns continue to undercut demand for existing homes. Meanwhile, the inventory of existing homes on the market rose 14.4% from a year ago. This translates to 3.2 months of supply at the current sales pace, up from 2.9 months in February. Inventory will increase slightly over the next few months despite mortgage rates staying elevated. But even so, it’s going to remain a seller’s market in most areas as inventories stay relatively low. 

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