There’s more bad news for potential homebuyers: prices just hit a new record

There’s more bad news for potential homebuyers: prices just hit a new record
There’s more bad news for potential homebuyers: prices just hit a new record

Saul Loeb/AFP/Getty Images

U.S. home prices continue to exceed the all-time highs set last year.



CNN

U.S. home prices rose the fastest in months to a new record high in January, according to data released Tuesday, underscoring how a housing shortage combined with high mortgage rates continues to limit affordability.

The S&P CoreLogic Case-Shiller national home price index rose 6% in January from a year earlier, accelerating from a 5.6% annual gain in December. This is the highest annual increase since late 2022.

«For the second month in a row, all cities reported annual price gains, with San Diego jumping 11.2 percent,» Brian Luke, head of commodities, real and digital assets at S&P Dow Jones Indices, wrote in a statement.

«On a seasonally adjusted basis, home prices continue to break past record highs set last year,» he noted.

Home prices shot to new heights amid a combination of factors; specifically, decades of underbuilding have left millions of homes in short supply. In recent years, efforts to increase this inventory have been hampered by rising costs as well as sharply rising interest rates.

The Federal Reserve’s series of rate hikes designed to curb demand and slow inflation sent average mortgage rates soaring to nearly 8% last year. Higher rates stifled demand and kept home sellers on the sidelines, further limiting supply.

The 30-year fixed-rate mortgage averaged 6.87 percent in the week ending March 21, according to data from Freddie Mac.

Mortgage rates are expected to fall later this year — especially if the Federal Reserve starts cutting rates as planned — but they may not fall much: Economists at PNC Financial Services Group expect them to reach 6.5% by the fourth quarter .

«This means housing affordability will still be low this year,» Ershang Liang, an economist at PNC Financial Services Group, told CNN.

In fact, a separate report released Tuesday found that it’s actually more affordable to rent than to buy in America’s biggest cities.

Realtor.com’s February Rent Report found that monthly rent is cheaper than paying a mortgage in the 50 largest U.S. cities.

In February, the cost of buying a starter home in these cities was $1,027 more than renting one. That’s more than a difference of $865 in February 2023.

Austin, Texas; Seattle; Phoenix; San Francisco; and Los Angeles were the top five metropolitan areas with the biggest rental-to-buy savings, according to the Realtor.com report.

In California, it’s not surprising that the cities facing the biggest housing shortages are seeing some of the sharpest gains in home prices, Liang said.

«(In Los Angeles and San Diego) a new single-family permit is issued for every 11 new jobs, so we’re seeing strong employment growth in those places, but the pace of single-family homes hasn’t been able to keep up with employment growth there.» , she said.

However, decades-high interest rates and borrowing costs weighed on some price growth — especially for homes sold in the nation’s largest urban areas, according to the report.

On a monthly, seasonally adjusted basis, prices rose 0.4%. S&P CoreLogic’s 20-City Composite rose 0.1 percent, its slowest pace since February last year.

«The key number is the small gain relative to the month,» Robert Frick, corporate economist at Navy Federal Credit Union, wrote Tuesday. “If the trend continues, we could see prices start to fall; although, unfortunately, we are at best a year away from seeing house prices fall across the country.”

When seasonal adjustments are removed, 17 of the 20 metropolitan areas recorded a decline in prices from December to January. San Diego, Los Angeles and Washington, D.C. posted positive gains. Home prices in Minneapolis fell 2.4 percent in the three months ending in January, according to the report.

Cities such as Phoenix, Dallas and Denver, which have seen slower price growth or even price declines on a monthly basis, are likely to experience a correction after previous years of sharp price increases, Liang said.

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