AI-Generated using MidJourney. Prompted and edited by: Chris Janaro

U.S. home prices declined modestly for a seventh-straight month in January, though the Federal Reserve Board’s continued rate increases despite March’s regional banking wobbles may accelerate housing price decreases to come.

Prices have fallen incrementally since the end of June last year. However, the decline was still smaller in January, according to The S&P CoreLogic Case-Shiller U.S. National Home Price report released Tuesday morning. The index fell 0.5% in January compared to the previous month, and a decrease of only 0.2% after seasonal adjustment. The 10-city composite rose 2.5% year over year, down from 4.4% in December. The 20-city composite also rose 2.5%, down from 4.6% in the previous month. 

Continuing the West Coast home price decline, the report showed that prices were lower year over year in San Francisco (-7.6%), Seattle (-5.1%), Portland, Oregon (-0.5%), and San Diego (-1.4%). The Southeast remains the U.S. home price winner having the most significant annual price gains of the 20-city composite. Miami prices were up 13.8%, Tampa prices up 10.5%, and Atlanta prices rose 8.4%. All 20 cities, however, reported lower prices in the year ending January 2023 versus the year ending December 2022.

Homebuyers looking forward to more variety and affordable sellers in the spring may get their chance, but it still hedges largely on mortgage rates that may begin to tighten again in light of recent pressure on regional banks and as a direct result of the FED’s remaining rate hikes this year. With rising interest rates slowing the market further, the outlook for this spring’s crucial selling season is optimistic if you are a buyer, as sellers may feel the pressure to lower their prices to remain attractive and affordable despite the high-interest rates.

“Financial news this month has been dominated by ructions in the commercial banking industry, as some institutions’ risk management functions proved unequal to the rising level of interest rates,” said Craig Lazzara, Managing Director at S&P DJI, in a statement on the report, adding that “Despite this, the Federal Reserve remains focused on its inflation-reduction targets, which suggest that rates may remain elevated in the near term.”

The housing market makes up roughly 18% of the U.S. economy and is particularly sensitive to the FED’s interest rate changes affecting mortgage affordability.  With Federal Reserve Chair Jerome Powel indicating that his inflation-fighting rate hikes may be reaching their end soon, the housing market could begin to price in lower rates in anticipation.

Presently, mortgage rates remain on the downswing for now; the 30-year fixed mortgage rate tumbled to 6.42% from 6.6% the week prior, according to Freddie Mac. While the east coast and particularly the southeast have seen increasing home prices, those fortunate to house hunt west of the continental divide may be tempted and see value in the region’s continually declining home prices.

Even with month-over-month declines since the June housing market peak, many potential sellers are still scared to put their homes up for sale. “I have a lot of potential sellers that would put their homes on the market if they knew they could secure what they want in the next place,” says Syracuse-based Real Estate Agent Janine Lundrigan. “Because it’s so hard to purchase with any kind of home sale contingency, sellers remain hesitant.

As markets digest the FED’s remaining rate hikes in the coming months, it has the added effect of raising mortgage rates. “At the same time, you could potentially see some restrictions of credit by regional banks, which tend to be a decent source of mortgage lending. So, it could affect credit conditions, obstructing things going forward for higher-priced homes,” says Jonathan Millar, Sr. Economist, Barclays Capital. “I think we’ll see continued weakness in the housing market in pretty much any scenario. The question is whether it accelerates or things continue along the same lines that they have been.”

Comments are closed.