Home prices rose to a record high in December, showing sustained demand even as higher interest rates make buying a home more expensive.

At the national level in December, seasonally-adjusted prices jumped 5.5% year-over-year and 0.2% monthly, Tuesday’s Case-Shiller report for the last month of 2023 showed. It also showed annual increases in each of the 20 cities it tracks for the first time in 2023.

While existing homeowners can celebrate appreciated values as a result of the rising prices, the reported growth also pushes the dream of owning a home further out of reach for aspiring buyers. 

“Home prices combined with the high mortgage rates has made affordability the worst it’s been for 40 years,” said Anna Wong, chief U.S. economist for Bloomberg Economics. 

Of the cities Case Shiller tracks, San Diego saw the biggest year-over-year gain in December at 8.8%, followed by Detroit and Los Angeles which each saw 8.3% increases. 

There’s no sign of these prices cooling anytime soon. Economists expect low inventory to keep pressuring prices upward through 2024. And while there is a slew of multifamily housing expected to come online this year, there’s little single-family home inventory in the construction pipeline.

While prices are continuing to rise, the pace of increases has subsided.

In October, mortgage rates rose to 8%, cooling demand. It wasn’t enough to lower prices, but it did slow the pace of growth through the end of 2023.

Slowing down a bit is a good sign for the Federal Reserve, said Citi economist Gisela Hoxha. Home prices impact the measure of shelter inflation, and the 5.5% year-over-year growth in home sales sits above the Fed’s goal of 2% inflation. 

“They would want to see home price increases more in line with pre pandemic levels,” Hoxha said.

But the Fed still faces a monetary policy balancing act in its effort to keep the strong economy afloat. If it decides to cut rates in 2024, more buyers could enter the market, driving up demand and home prices even more. 

With the presidential election approaching in November, rising home prices could impact the sentiment of young voters who already face the financial pressures from mounting student loan debt, said HousingWire’s lead analyst Logan Mohtashami. 

“I think the struggle for young Americans, having very high mortgage rates is getting very frustrating,” Mohtashami said. “When we look at credit card stress data, it’s young renters running into delinquencies and auto delinquencies. Young Americans are feeling distressed.” 

Any threats of a faltering housing market largely lies in the health of the labor market. If we enter a recession and people lose their jobs, it could result in mortgage delinquencies.

“Ultimately it comes down to the strength of the economy,” Hoxha said. “If incomes are keeping up at a healthy pace, people will be able to afford rising home prices.”

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