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Home prices rose to an all-time high in May. The S&P CoreLogic Case-Shiller U.S. National Home Price Index, which measures the price of existing homes across the nation, rose 5.9% in May from a year earlier, down a bit from the 6.4% annual gain in the previous month. On a month-over-month, seasonally adjusted basis, home prices rose 0.3% — the 16th consecutive monthly increase. A limited supply of homes for sale is supporting continued price appreciation, but low housing affordability is weighing on the pace of gains. Base effects in the home price index mean the annual rate of price increases will continue to slow in the coming months, since the average monthly price gain in the spring and summer last year was unusually strong.
Single-family construction continues to slow down. Total housing starts rose 3.0%, to 1.355 million annualized units in June. Single-family starts fell 2.2%, while multifamily starts jumped 19.6% during the month. Despite June’s gain, multifamily starts are still down sharply over the past year, amid softer apartment market fundamentals and tighter credit. Single-family building permits fell 2.3%, while multifamily permits rose 15.6%. Single-family starts sank to an eight-month low, while single-family permits fell for the fourth consecutive month. This suggests the recovery in single-family construction that started in 2022 is slowing down. That said, the low inventory of existing homes should continue to encourage new construction of single-family homes, albeit at a slower pace than over the past year.
New-home sales fell again in June, dropping 0.6% in June to a seasonally adjusted annual rate of 617,000 units – the weakest pace since November 2023. The new-home market has softened recently amid higher mortgage rates, increased availability of existing homes and a more moderate pace of economic growth. Builders say home buyers are in wait-and-see mode amid expectations for lower mortgage rates later this year. The supply of new homes for sale rose 0.8% from the previous month — the 11th consecutive monthly increase. At the current sales pace, that inventory would last 9.3 months. A rising supply of new homes, as well as more builders using price incentives to entice buyers, should continue to weigh on new-home prices this year.
High mortgage rates are driving existing-home sales to one of the slowest paces since 2010. Sales of previously owned homes fell 5.4% to 3.89 million annualized units in June — the fourth consecutive monthly decline. The decline largely reflects the rise in mortgage rates that started at the end of February. Relatively low sales levels show that affordability concerns continue to undercut demand for existing homes. Meanwhile, the inventory of existing homes on the market rose 23.4% from a year ago. This translates to 4.1 months of supply at the current sales pace, up from 3.57 months in May. Sales may turn a corner later this year once the Federal Reserve begins cutting interest rates, bringing mortgage rates closer to 6%. The average 30-year, fixed mortgage rate was 6.86% at the end of June and has drifted lower since then.
