Home price growth slowed for the 10th straight month in January, a sign the U.S. housing market is the gap between demand and supply is narrowing ahead of the all-important spring selling season.
The S&P/CoreLogic Case-Shiller National Home Price Index, a measure of home prices in 20 major U.S. metros, rose 4.3 percent in the year-ended January, down from 4.6 percent in December. It was the smallest gain since April 2015, when prices grew 4.2 percent.
Slower price growth and decreasing mortgage rates could make purchasing a home easier for some buyers this spring. But low levels of inventory and affordability pressures continue to challenge buyers.
“This slowdown might feel slow relative to the last couple of years, but it’s still, from a historical perspective, a seller’s market,” said Daryl Fairweather, chief economist at Redfin. “It’s still hard out there for buyers, just not as hard as it was last year or the year before.”
But some buyers have caught a break.
Jennie Ivins had been watching the housing market in Hamilton Township, N.J. for three years, discouraged by homes that just weren’t affordable.
“It was frustrating to look at houses and see that they were all out of my price range,” Ivins said.
In January, she and her husband finally snagged a deal –– a four-bedroom, two-bedroom house for $269,000.
Sales of existing homes rose 11.8 percent in February, driven by lower mortgage rates, smaller price increases and consistent wage growth. Mortgage rates spiked to over 5 percent in November, but fell alongside the 10-year Treasury yield last week after Federal Reserve Chairman Jerome Powell indicated a rate increase this year is unlikely. The 10-year yield is a reference rate for everything from mortgages to car loans.
West Coast markets were once the epicenter of sharp price increases, generating fierce bidding wars and displacing residents who were priced out of regions. But now they’re the face of the cooling trend as the high prices force some would-be buyers off the market.
“When prices reached a point where there just weren’t enough buyers to afford them, at the same time interest rates were peaking last fall, buyers buyers backed off and sellers had to drop their prices or see their home sit on the market,” Fairweather said.
In San Francisco, prices saw just a 1.8 percent annual gain, compared to 10.2 percent in the same period last year. It was the same story in Seattle, where the rate of annual price growth fell from 12.9 percent to 4.1 percent.
But the slowdown in price growth is far from a guarantee that buyers will have an easy time this spring. Prices are still outpacing wage growth, fueling concerns that affordability will remain an issue for buyers, especially those on the market for the first time.
The number of homes on the market has been creeping up steadily but is far below demand.
And construction data released Tuesday did little to indicate the market’s supply problem is improving. Housing starts fell 8.7 percent in February, dragged down by weak single-family home construction.
“The underlying market fundamentals of rising employment, rising income, rising household formations and housing shortages in many regions continue to support overall housing activity,” said Thomas Simons, a senior economist at Jefferies & Company.
In New Jersey, the Ivins plan to move into their new house as soon as possible, while also listing their current home. Ivins said the lower price of the new house means they can pay both mortgages until they find the right buyer for their current home.
For Ivins, a writer and mother, the extra space of the new house means her three sons no longer have to sleep in the same room.
“It was exactly what we needed,” she said.