Home prices nationwide continued to rise in January, signaling a market firmer than expectations — at least until before the recent economic shake-up under President Donald Trump’s new policies.
The S&P CoreLogic Case-Shiller Home Price Index, which measures repeat sales, posted a 4.1-percent annual increase in January, up from 3.9 percent the previous month. The 10- and 20-city composite indices also recorded year-over-year gains of 5.3 percent and 4.7 percent, respectively.
Another indicator, the Federal Housing Finance Agency (FHFA) House Price Index, reflected this upward trend. Prices of single-family homes, which it measures, grew by 4.8 percent in January compared to a year ago.
These numbers, however, predate any impact from current developments, including Trump’s universal and reciprocal tariffs announced on April 2 that are expected to drive up building costs.
While the President is not adding tariffs to Canadian lumber — a major input in construction — the new tariffs are expected to hit suppliers and supply chains based in Asia especially hard. The National Association of Home Builders warned of volatility in pricing while companies learn to adjust to the recent policies.
“While the complexity of these reciprocal tariffs makes it hard to estimate the overall impact on housing, they will undoubtedly raise some construction costs,” NAHB Chairman Buddy Hughes said in a statement.
While rising home prices discourage potential buyers, economists said they show that the economy is not as weak as some fear. House prices are partly driven by low inventory, and restricted supply coupled with steady demand continues to fuel price growth. This has widened the gap between homeowners and renters, but Trump’s high tariffs may lower mortgage rates and stabilize the market — that is, if the Federal Reserve cuts interest rates as Trump urges, though that seems unlikely at this point.
“The housing market’s not imbalanced the way a lot of people believe it is,” said Steven Rocchiuto, managing director and chief economist at Mizuho Securities USA.
“There’s a lot less supply available and the supply that is available is more expensive than there was before,” Rocchiuto said. “Therefore, the value of the home stock has gone up and that’s what the price indices are reflecting.”
This is supply and demand at work. Prices continue to increase because fewer homes on the market mean buyers are more competitive.
Case in point: Los Angeles after the Palisades and Eaton Fires. The January wildfires in California caused widespread devastation and displacement, with over 37,000 acres burned and more than 16,000 structures destroyed.
Los Angeles, with an established housing market, has long been characterized by low inventory, although this has not dampened the demand. So, when homeowners decided to sell instead of rebuild following the fires, “the floodgates opened,” said Jodi Breneman, a realtor.
“I talked to a lot of agents lately and we’ve all said the same thing, ‘Oh, my God, are you so busy as I am?’” she said. “It was really quiet. And then all of a sudden everybody has come into the market with respect to being ready to list.”
A lifelong Californian, Breneman said the surge in demand is changing the landscape, attracting developers who previously would have bought a lot “that was old and dilapidated” and “tore it down to rebuild something else.”
“My phone is ringing off the hook,” she said. “There wasn’t any vacant land like this.”
The case of Los Angeles, however, is not a reflection of the housing market in other regions or nationwide. Los Angeles recorded an year-over-year growth of 3.98 percent — nearly the same as the average growth of 20 cities tracked in the Case-Shiller index.
For the ninth consecutive month, New York reported the highest annual gain at 7.7 percent. This is followed by Chicago at 7.5 percent and Boston at 6.6 percent.
Tampa was once again the only city to log a price decline, dropping by 1.5 percent.
The costs of rent and home ownership tend to move together, but affordability in the current cycle is stretched for any potential home buyer — meaning, it’s more expensive to own a home than rent. But as mortgage rates decline — the recent 30-year fixed mortgage slightly dipped to 6.7 percent compared to a January peak of 7 percent — this divide may soon narrow.
“That gap should come back to balance as mortgage rates stay relatively low where they are and home price gains kind of stabilize,” said Stan Shipley, an economist and analyst at Evercore ISI.
Mortgage rates may continue to fall, as Trump called on the Federal Reserve to cut interest rates to cushion the impact of the high tariffs he had imposed.
Tariffs are expected to weigh down on consumer spending, which significantly contributes to the economy. But Shipley said the stability of the housing market would “buffer” its impact on the economy.
“There needs to be another part of the economy, most notably housing, to offset the weakness that we may see in consumer spending,” he said.
But Trump’s game plan “is more of a pipe dream than reality,” he added. Slashing short-term interest rates does not necessarily mean long-term mortgage rates would go down. Recent Fed rate cuts drove up mortgage rates.
So, how will these developments affect housing prices? Ricchiuto was temperate: “We don’t know. Nothing has been done yet.”
“And if they do it,” he added, “they may turn around a day later and reverse it.”
