US Housing Market Shows Signs Of Bottoming Out As Home Prices Defy Expectations In February

Extremely high interest and mortgage rates have hurt the housing market in the United States over the past year, discouraging new homebuyers from entering the market, but new data indicates home prices have started sending signals of bottoming out.

House Price Index Topped Expectations in February

Data released by S&P Global on Tuesday showed that the S&P CoreLogic Case-Shiller 20-city home price index rose by 0.2% month-over-month in February, surprising estimates of a 0.7% drop in the month.

The index ticked 0.4% up year-on-year, down from the revised 2.6% increase in January, but better than forecasts of a flat reading.

Price increases slowed in all 20 cities, while Miami (10.8%), Tampa (7.7%), and Atlanta (6.6%) recorded the biggest gains.

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Losses were recorded in San Francisco (-10%), Seattle (-9.3%), San Diego (-4.1%), Portland (-3.2%), Las Vegas (-2.6%), Phoenix (-2.1%), Los Angeles (-1.3%), and Denver (-1.2%).

“Home price trends moderated in February 2023,” says Craig J. Lazzara, managing director at S&P DJI.

"Miami’s 10.8% year-over-year gain made it the best-performing city for the seventh consecutive month. Tampa (+7.7%) and Atlanta (+6.6%) continued in second and third place, with Charlotte (+6.0%) close behind," he added.

Lazzara continues to expect mortgage financing and the prospect of economic weakness to act as a headwind for housing prices for at least the next several months.

New Home Sales Spiked In March, Also Topping Estimates

The U.S. Census Bureau reported an unexpected 9.3% increase in sales of new single-family dwellings in March 2023, to a seasonally adjusted annualized rate of 683,000, the highest in a year and above predictions of 630,000. Sales in the Northeast increased 170.8% to 65,000, 29.8% to 161,000 in the West, and 6% to 71,000 in the Midwest, but declined 5.4% to 386,000 in the South.

The median sales price of newly built homes was $449,800, with an average sales price of $562,400, up from $435,900 and $511,800, respectively, a year earlier.

Market Reactions

Despite the better-than-expected statistics, housing equities fell on Tuesday, but still outperformed the market overall.

As of Tuesday morning, the Real Estate Select Sector Fund XLRE was down 0.4%, while the SPDR S&P 500 ETF Trust SPY was down 0.7%.

The best-performing housing stock of the day was Welltower Inc. WELL, which gained 1%. Boston Properties, Inc. BXP and Alexandria Real Estate Equities, Inc. ARE were the biggest losers in the sector, each falling by about 3% at the time of publication.