U.S. home prices ticked up again in January despite sustained high borrowing costs as the market deals with a historically low number of homes for sale.
At the national level in January, seasonally-adjusted prices jumped 6% year-over-year and 0.4% monthly, Tuesday’s Case-Shiller report for the last month of 2023 showed.
January’s national index reflects the fastest annual rate since 2022, but slower growth on a month by month basis could be a sign the market is cooling.
The 20-city index rose just 0.14% from December to January, which Citi economist Gisela Hoxha says reflects downward pressure on demand and improved supply.
“The availability of homes for sale has improved in recent months, but it’s still historically low,” Hoxha said.
All major markets reported annual gains, though some saw declines on the month-to-month basis.
San Diego reported the highest increase of home prices, surging 11.2% year-over-year. Los Angeles saw the second fastest rate of growth with an increase of 8.6%.
“Some of that is due to low inventories in Southern California,” Moody’s Analytics economist Matt Walsh said. “Particularly in LA, they have a hard time increasing the supply of homes there. There’s a lot of under-building.”
Detroit was also among the top five cities where prices grew the fastest, increasing 8.2% annually.
Though the city has gone through economic challenges over the past several decades, its housing market has been a recent bright spot. The city has bought thousands of distressed properties through the Detroit Land Bank and auctioned more than 18,000 of them since 2014.
Gino Tozzi, a real estate agent in Detroit, said he has clients holding onto vacant and distressed properties, taking homes away from an already low inventory in the city.
“It might be a home that doesn’t have any more tenants in it for instance, and they’re just trying to see if they can get a certain price for the home,” Tozzi said. “There’s a lot of sellers that have an unreal, unrealistic, high expectation on what the value is worth.”
On the opposite end of the spectrum, Portland saw the lowest gain at 0.9%. This could be attributed in part to slower in-migration in the Pacific Northwest. Perceptions of crime, quality of life, and public safety downtown caused significant out-migration from the region that has partially reversed, but not to pre-pandemic level.
Housing inflation is something the Federal Reserve takes into consideration when determining what to do with interest rates. Economists still expect the Fed to cut interest rates at its June meeting, but Fed Chair Jerome Powell said he’s been keeping an eye on rising home prices.
“Things have cooled off pretty substantially in terms of home price appreciation. We’re not back in 2021 and 2022,” Walsh said. “But it is an open question. I do think it poses a bit of risk to the outlook in terms of how the Fed responds to this.”
Slower appreciation is a good thing for the Fed, which has been working to bring overall inflation down to 2%. The Fed also considers rent prices, which have cooled across the country as construction on apartments and other multifamily projects finished this year.
Tuesday’s report reflects national home price appreciation returning to pre-pandemic levels, but economists emphasized that the post-Covid market should be treated differently. Affordability is the worst it’s been in four decades, and with less homes on the market, the number of real estate transactions has decreased.
“It’s a very difficult market for buyers. With low levels of transactions, the impact on the economy is real. A lot of the spending associated with owning a home is done when people buy their home, they buy new furniture and things like that,” Walsh said. “So while home prices continue to rise, there’s still a lot going on in the housing market that points to a broader slowdown in housing.”