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Home-price growth has started to tick higher again. The S&P CoreLogic Case-Shiller U.S. National Home Price Index, which measures the price of existing homes across the nation, rose 3.9% in December from a year earlier, up from a 3.7% annual gain in the previous month. On a month-over-month, seasonally adjusted basis, home prices rose 0.5%. While low house affordability continues to weigh on demand, the limited supply of homes for sale is supporting continued price gains. New York City reported the strongest price appreciation over the year, followed by Chicago and Boston. Borrowing costs are likely to stay elevated, near 7% over the next few months, which means that buyers and sellers will continue to deal with challenging conditions in the housing market.
Adverse winter weather caused residential construction to plunge in January. Total housing starts fell 9.8%, to 1.366 million annualized units in January. Single-family starts dropped 8.4%, while multifamily starts, which tend to be very volatile on a monthly basis, tumbled 13.5% during the month. Single-family permits were unchanged, while multifamily permits rose 0.2%. The low inventory of existing homes for sale should continue to encourage new construction of single-family homes in 2025, albeit at a slow pace. Meanwhile, multifamily construction will remain weak over the next few months as rising apartment vacancies and elevated borrowing costs discourage new development.
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New-home sales ended a two-month string of gains in January. They fell 10.5% to a seasonally adjusted annual rate of 657,000 units. However, the new-home market continues to benefit from a tight supply of existing homes for sale and builder incentives that help make new homes more affordable for buyers. While the new-home market has been less sensitive to changes in mortgage rates thanks to the incentives offered by builders, rates that are hovering around 7% will likely discourage some home buyers in the months ahead. The inventory of new homes rose to its highest level since 2008. At the current sales pace, that inventory would last nine months.
Existing-home sales are starting the year on a down note. Sales of previously owned homes fell 4.9% to 4.08 million annualized units in January, as buyers contend with elevated financing costs, high home prices and limited inventory. The main driver behind the monthly decline was likely renewed upward pressure on mortgage rates. Yet mortgage applications, which lead sales by a month or two, rose in January, even with rates near 7% for most of the month. The total inventory of existing homes on the market rose 16.8% from a year ago. This translates to 3.5 months of supply at the current sales pace, up from 3.2 months in December.
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