Market Momentum Shift: Housing Prices On A Downward Slide After Nine Months Of Growth

The housing market is demonstrating signs of cooling down, as home prices fell 0.2% month over month in November after rising for nine consecutive months, according to the S&P CoreLogic Case-Schiller Indices. This can be attributed to the soaring mortgage rates, which hit their 20-year highs in October last year. 

"U.S. home prices edged downward from their all-time high in November," said Brian Luke, head of Commodities, Real & Digital Assets at S&P Dow Jones Indices. "The streak of nine monthly gains ended in November, setting the index back to levels last seen over the summer months. 

However, the affordability crisis remains exacerbated, as housing prices stand elevated on a year-over-basis. The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index rose 5.1% in November from the same period last year. This follows a 4.7% year-over-year rise reported in October of last year. The tight housing market caused median home prices to remain elevated, as the median price of a previously owned home rose 4.4% year over year to $382,600 in December.  

Mortgage Rates To Remain High

Mortgage rates rose to 7.04% on Feb. 5, as a strong wage growth report coupled with the Federal Reserve's decision to push back benchmark interest rate cuts to later this year allowed the borrowing rate to remain elevated. This is slightly lower than the 20-year high level of 8% record in October 2023. 

"The strong job market is good news for the spring buying season as higher household incomes are a necessary component, but it also means that mortgage rates are not likely to drop much further at this point," Mortgage Bankers Association Chief Economist Michael Fratantoni said.

The sky-high mortgage rates impacted home sales significantly last year, as the number of previously owned homes came in at 4.09 million units in fiscal 2023, marking the lowest level since 1995. The golden handcuffs effect, stemming from numerous homeowners being tied to their lower mortgage rates, has led to a reluctance among sellers to put their properties on the market.

In December, the total number of existing home sales experienced a 1% decline from November, reaching a seasonally adjusted annual rate of 3.78 million transactions. In comparison to the same period the previous year, there was a 6.2% decrease in sales, down from 4.03 million in December 2022.

What's In Store For 2024?

Mortgage rates are poised to decline in the second half of 2024 as the Federal Reserve implements rate cuts, which could renew momentum in the U.S. housing market. 

"Despite persistent inventory challenges, we anticipate a busier spring home-buying season than 2023," Freddie Mac Chief Economist Sam Khater said. 

However, the persistent supply crunch woes as most sellers remain in golden handcuffs should cause home prices to remain high throughout the year. Khater expects median prices to continue rising at a "steady pace" in 2024. 

National Association of Home Builders (NAHB)/ Wells Fargo Housing Market Index stood at 44 in January, slightly shy of 50, which reflects optimal building conditions. 

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