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Home price gains continue to cool. The S&P CoreLogic Case-Shiller U.S. National Home Price Index, which measures the price of existing homes across the nation, rose 4.2% in August from a year earlier, down from its 4.8% annual gain in the previous month. On a month-over-month, seasonally adjusted basis, home prices rose 0.3%. A limited supply of homes for sale is supporting continued price appreciation, but low housing affordability is weighing on the pace of price gains. Base effects in the home price index mean the annual rate of increase will continue to slow in the coming months, as the average monthly price gains in the summer and fall of last year were unusually strong.
Lower mortgage rates are improving the outlook for single-family home building. Total housing starts dipped 0.5%, to 1.354 million annualized units in September. Single-family starts rose 2.7%, while multifamily starts fell 9.4% during the month. The increase in single-family starts suggests homebuilders are feeling more confident they will be able to sell a lot of their inventory following the official start of the Federal Reserve’s interest-rate easing cycle at its September meeting. Multifamily starts are down sharply over the past year alongside softer apartment market fundamentals and tighter credit. Single-family building permits rose 0.3%, while multifamily permits fell 8.9%. The low inventory of existing homes should continue to encourage construction of single-family homes, albeit at a slower pace than over the past year. Meanwhile, multifamily construction will remain weak for the rest of this year, as builders focus on completing projects and rising apartment vacancies discourage new development.
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New home sales rose in September as mortgage rates eased. Sales rose 4.1 % to a seasonally adjusted annual rate of 738,000 units. The supply of new homes for sale rose 8% from a year ago. At the current sales pace, that inventory would last 7.6 months. Although still far from the highs reached during the housing market crash in 2008, the ratio of new-home inventory to sales remains more elevated than in the existing-home market, giving prospective buyers more options. Lower mortgage rates should eventually provide a boost to new-home sales, but affordability challenges and a softer labor market will likely limit the rebound.
High mortgage rates are driving existing home sales back to their slowest pace since late 2010. Sales of previously owned homes fell 1% to 3.84 million annualized units in September. Weak sales levels this year show that homes have simply become unaffordable for many buyers, undercutting demand for existing homes. September’s rise in mortgage applications, which is usually a bellwether for future home sales, suggests there was a bit of a recovery in October. Unfortunately, mortgage rates have started rising over the past couple of weeks and the average 30-year, fixed mortgage rate now sits at 6.79%, the highest in four months. The total inventory of existing homes on the market rose 23% from a year ago. This translates to just 4.3 months of supply at the current sales pace, up from 4.2 months in August. Although inventories have improved over the past year, the availability of existing homes on the market remains substantially below prepandemic levels.
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