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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 3.8% in November from a year earlier, up from a 3.6% annual gain in the previous month. On a month-over-month, seasonally adjusted basis, home prices rose 0.4%. While low affordability continues to weigh on demand, a limited supply of homes for sale is supporting continued price growth. New York reported the strongest price appreciation over the year, followed by Chicago and Washington, D.C. Borrowing costs are likely to stay elevated at around 7% over the next few months, which means that buyers and sellers will continue to deal with challenging conditions in the housing market.
Residential construction ended last year on a positive note. Total housing starts surged 15.8%, to 1.364 million annualized units in December. Single-family starts rose 3.3%, while multifamily starts, which are very volatile on a monthly basis, rose 61.5% during the month. The regional data for 2024 show that combined single-family and multifamily starts rose in the Northeast, while falling in the Midwest, the South and the West. Single-family permits rose 1.6%, while multifamily permits fell 5%, signaling that the overall jump in starts will likely be short-lived. The low inventory of existing homes should continue to encourage new construction of single-family homes this year, 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.
New-home sales rose for the second consecutive month, gaining 3.6% in December to a seasonally adjusted annual rate of 698,000 units. 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 interest rates, thanks to the incentives offered by builders, mortgage rates hovering around 7% will likely discourage home buying in the months ahead. The inventory of new homes for sale was unchanged from a year ago. At the current sales pace, that inventory would last 8.5 months.
Existing-home sales are still struggling, despite another monthly increase in December. Sales of previously owned homes rose 2.2% to 4.24 million annualized units in December, a 10-month high. Existing-home sales continue to run at a slow pace as buyers contend with elevated financing costs, high home prices and limited inventory. The small rise in December reflects sales that occurred in September and October, when mortgage rates fell to 6%. Mortgage applications, which lead sales by a month or two, fell in December on the back of mortgage rates climbing back to 7% at the end of 2024. The total inventory of existing homes on the market rose 16.2% from a year ago. This translates to 3.3 months of supply at the current sales pace, down from 3.8 months in November.
