National home prices continued to rise at a steady pace in December, but recent disasters and a new presidential administration are expected to drive the market higher.
Home prices rose 3.9 percent in December from a year earlier, according to the S&P CoreLogic Case-Shiller Home Price Index. This was a slight increase from November’s 3.7 percent and is nearly on par with pre-pandemic averages, though it continues to lag behind historical trends.
Data released Tuesday covered only purchases made until December last year — before the devastation of wildfires in California and the return of Donald Trump to the White House in January.
California is bound to face a tremendous shortage in the wake of fires, driving rents and home prices higher as displaced homeowners look for new homes. Washington, D.C. — which, in the latest index, recorded a 5.6-percent gain — may soon feel a slump following layoffs in the federal government.
Trump’s tariffs on steel and aluminum imports will also raise construction expenses, while aggressive mass deportation will remove essential immigrant workers, who comprise nearly 30% of the industry’s workforce. An increase in building costs can jack up prices for existing homes, as buyers may turn to them when new homes are out of reach.
“When we get into the first quarter, we’ve got the fires in Los Angeles and so many homes destroyed that it is going to put upward pressure that will be visible in this year’s numbers,” said Christopher Low, chief economist of FHN Financial.
For high-income earners, who are more likely to own homes than rent, higher home prices raise the value of their assets and their purchasing power. But rising prices make it more difficult for lower- and moderate-income households to afford a home. High mortgage rates that typically reduce demand and prices are not having the expected impact and exacerbate housing unaffordability.
“I don’t think the market has been especially sensitive to rates,” said Jonathan Millar, director and senior economist at Barclays Investment Bank.
“We’re still in a situation where the supply is relatively low and even with rates pretty high, house prices continue to creep upward,” he said. “It doesn’t seem like that’s set to change anytime soon.”
In the latest index, East Coast again recorded the highest annual gain, with New York topping 20 cities at 7.2 percent, followed by Chicago and Boston with 6.6 percent and 6.3 percent, respectively — a contrast to cooling markets in the West.
San Francisco dropped 4.5 percent in the second half of 2024 and is now 11 percent lower than its post-pandemic peak in May 2022.
Tampa, previously a hotspot, also declined by 2.7 percent in the last six months of the previous year. It was the only city where home prices dropped year-over-year in December, at 1.1 percent.
The overall housing market remains under pressure, while regional trends diverge. There is little indication that home prices will reverse their course soon. For FHN’s Christopher Low, the next big story is clear: “Regions will move in different directions.”
