The housing market is experiencing a notable shift, with increasing supply and declining demand leading to a decrease in home prices. This trend is becoming more pronounced, reflecting an accelerated cooling period.
According to the latest data from the S&P CoreLogic Case-Shiller Index, national home prices rose merely 2.7% in April year-over-year. This marks a decrease from March’s 3.4% annual increase and represents the slowest growth rate seen in nearly two years.
It’s important to note that the figures from the report reflect a three-month average ending in April. More current insights from Parcl Labs suggest that home prices across the nation are currently flat compared to a year ago.
The S&P Case-Shiller report highlighted that the downturn in prices is manifesting across both the 10- and 20-city composites it tracks. These indices are significantly below their recent highs. Moreover, most of the annual increase recorded in the April data was concentrated in the last six months, indicating that recent market activity rather than consistent yearly growth is driving the numbers.
“A noteworthy aspect of this cycle is the change in regional dynamics—areas that thrived during the pandemic are now struggling, whereas traditionally stable markets in the Midwest and Northeast are taking the lead. This transition indicates a maturing housing market that is increasingly governed by fundamental economic factors rather than speculative trends,” commented Nicholas Godec, head of fixed income at S&P Dow Jones Indices.
New York reported the most significant price increase, achieving a 7.9% annual rise, followed by Chicago with a 6% increase and Detroit at 5.5%. This marks a distinct shift from the years of the pandemic when demand was robust in the Sun Belt regions, driving substantial price hikes.
Conversely, those once-booming markets are now experiencing declines. Tampa, Florida saw prices drop by 2.2%, and Dallas fell by 0.2%. In San Francisco, prices remained relatively stable, while Phoenix and Miami managed modest gains of just over 1%.
Elevated mortgage rates exceeding 7% in April have recently hovered just below that threshold, resulting in monthly payment expenses reaching near generational highs. This situation is effectively pricing out a large segment of potential buyers, particularly first-time homebuyers, whose representation in May sales fell to only 30%, a decline from the historical norm of 40%.
Although the inventory of homes for sale is sharply increasing, it remains below pre-pandemic figures. A report from Redfin indicates that only 6% of sellers risk incurring losses on their sales, a slight uptick from the previous year but still historically low.
Despite the downturn in prices, they are not approaching the steep declines seen after the subprime mortgage crisis and the Great Recession over a decade ago.
“The supply of housing remains critically low, with existing homeowners hesitant to give up their sub-4% mortgage rates and new housing projects failing to meet demand levels. This ongoing imbalance in supply and demand is providing a protective price floor, thereby preventing the drastic drops some had anticipated,” Godec added.
