Home prices continued to decline nationally in December, for the sixth month in a row, a sign that high mortgage rates are continuing to deter potential buyers.
The seasonally adjusted S&P CoreLogic Case Shiller home price index declined by 0.3%, compared to last month. The composite 10-city index which includes big cities like New York, San Francisco and Boston, declined 0.4% while the most-watched 20-city index declined by 0.5%. Despite this, the non-seasonally adjusted home prices gained a 5.8% yearly increase in December, down from 7.6% in November.
The gradual decline in home prices shows signs of a cooling housing market in the face of rising interest rates. The Federal Reserve hiked interest rates seven times in 2022 in an effort to bring down inflation under 2%. Mortgage rates have nearly doubled since last year, inching close to 7%, and slowly bringing down home prices and sales. However, even with such significant hikes, home prices have only decelerated slowly while sales declined rapidly.
These numbers are also signs that the housing market has stabilized in recent months. “It shows that housing was under a lot of pressure last year because of the steep runup in interest rates,” said Douglas Porter, Chief Economist at BMO Financial Group. Home price gains for 2022 certainly look stable in comparison to the 18.9% peak in 2021.
Home sales have been struggling since last year due to the steep hike in interest rates. But even with prices on a decline, buyers aren’t purchasing as many homes.
Further, there’s a shortage of homes for sale as most homeowners refuse to sell their properties. Homeowners who locked-in their homes at cheaper mortgage rates don’t want to sell and take on higher rate mortgages to buy new homes. Additionally, with historically low inventory levels, home owners have fewer viable options to move onto. Homebuyers are likely to find more inventory in the newly-built home sector.
Existing home sales have been reducing since last year and in January showed a 0.7% decline, according to the National Association of Realtors (NAR). Pending home sales, which are based on signed home contracts for single-family homes however, tell a slightly different story about sales in early 2023. Contract signings increased to 8.1%, for the second month straight in January. Some economists believe this is partly because mortgage rates have come down to 6.65%.
December’s data showed the highest decline in home prices in San Francisco and Seattle. Home prices on the West Coast, which were previously booming in the middle of the pandemic, have fallen sharply over the past year owing to the rising mortgage rates. In sharp contrast, the Southeastern and Southern regions are performing the best as Miami posted the strongest yearly gains at 15.9%, followed by Tampa at 13.9%.