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House prices continue to rise for now, but that won’t last long.
The S&P CoreLogic Case-Shiller National Home Price Index, which measures home prices across the nation, rose 1% in July from a year ago, after being flat the previous month. On a month-over-month, seasonally adjusted basis, home prices rose 0.6%. Prices have increased on a monthly basis for six consecutive months. While housing demand has fallen this year, a reduction in the supply of homes on the market is keeping a floor under house prices. Despite low inventory, house prices will likely fall soon, albeit at a slower pace than last year. Following two years of double-digit price growth, the housing market remains overvalued.
Residential construction dropped again in August.
Total housing starts fell 11.3% to 1.28 million annualized units. Single-family starts dropped 4.3%, while multifamily starts fell 26.3% during the month. The pullback in residential construction stands in contrast to a strong gain in both single-family and multifamily permits. Building permits for single-family construction have trended up month after month since January 2022. Rising mortgage rates have started to chip away at builders’ confidence in the housing market, with the NAHB housing market index falling again in September — the second consecutive decline.
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New home sales fell amid a renewed rise in mortgage rates, dropping 8.7% in August to a seasonally adjusted annual rate of 675,000 units — the largest monthly drop since September 2022. The recent strength in new home sales indicates that the higher cost of taking out a new mortgage has discouraged homeowners with low mortgage rates from moving, which has kept the inventory of existing homes for sale near a record low. This has pushed buyers to the new-home market, where inventory is at a healthy level of 7.8 months’ worth of sales at the current sales pace. Builders have been able to offer rate buydowns, price discounts and other incentives to buyers. But, the recent increase in borrowing costs will test their ability to lean on incentives to sell homes.
Existing home sales fell in August and further drops are likely over the next few months. Sales of previously owned homes fell 0.7% to 4.04 million annualized units in August. The low level of sales shows that stretched affordability continues to weigh on demand for existing homes. The average 30-year fixed mortgage rate has risen from 6.9% in July to 7.07% in August. Meanwhile, the inventory of existing homes on the market fell 14% from a year ago. This translates to 3.3 months’ worth of supply at the current sales pace, which is unchanged from the previous month. Inventories are unlikely to improve in the coming months, as more homeowners choose to stay put rather than list their homes on the market.
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