The housing market continues to cool down, with prices dropping for six consecutive months, according to Tuesday’s S&P Case-Shiller Index data.
Home prices fell 0.3% in December from the prior month and have dropped 4.4% from their June peaks. While prices are still up on a year-over-year basis, the pace of increases slowed to 5.8% from 7.6% in November.
The three cities that saw the steepest price declines on a seasonally-adjusted, month-over-month basis included Las Vegas, Phoenix, and Portland, with drops of 1.5%, 1.3%, and 1.3%, respectively.
“The prospect of stable, or higher, interest rates means that mortgage financing remains a headwind for home prices, while economic weakness, including the possibility of a recession, may also constrain potential buyers,” Craig J. Lazzara, managing director at S&P DJI said. “Given these prospects for a challenging macroeconomic environment, home prices may well continue to weaken.”
In October, the 30-year fixed rate reached 7% for the first time since 2002 as bond yields continued to march higher amid the Federal Reserve’s aggressive rate-hiking cycle.
Mortgage rates fell back near 6% early this month, but have since rebounded sharply as hints of sticky inflation dashed hopes the Fed would ease up on policy.
According to Goldman Sachs, home prices will fall 6.1% in 2023 as mortgage rates tick higher. But by late 2024 some markets will see steeper declines, led by Austin, Seattle, and San Francisco.
The National Association of Realtors said last week that sales of existing homes have dropped for 12 straight months, hitting the lowest level since 2010.
“Home sales are bottoming out,” NAR chief economist Lawrence Yun said at the time, adding that buyers were also starting to gain more purchasing power and potentially benefit from lower home prices. “Homes sitting on the market for more than 60 days can be purchased for around 10% less than the original list price.”