U.S. home prices closed out 2024 with another record-high in December as buyer demand remained steady despite higher borrowing costs.
The S&P CoreLogic Case-Shiller National Home Price Index, which measures home prices across the country, rose 3.9% year-over-year, slightly larger than the gain the previous month. A measure of 20 cities showed New York with the highest gain, followed by Chicago and Boston. Tampa was the only city to see a decline in prices.
Despite high mortgage rates challenging affordability, homebuyers remained active as increased inventory provided more options. A brief dip in interest rates before December fueled a rebound in demand, keeping prices elevated. In the South and West, price growth stabilized as new construction added more homes onto the market.
“We saw a pretty impressive rebound in home buying demand in the fourth quarter of last year, as buyers reacted—with a bit of a lag—to falling interest rates, which helped push prices higher,” said Jeff Tucker, Principal Economist at Windermere Real Estate.
The Case-Shiller index, which measures repeat-sales data, reports on a two-month delay and reflects a three-month moving average. Homes usually go under contract a month or two before they close, so the December data are based on purchase decisions made earlier in 2024.
Home prices stalled in the second half of last year, with markets in the West dropping the fastest. Due to higher inventory in areas like Tampa and San Francisco, reduced demand kept the price of homes growing at a slower pace.
In January, newly listed homes increased by 37.5% compared with December, the largest December to January increase since January 2020, according to Realtor.com.
Despite rising inventory, borrowing costs remain a challenge, especially for first time homebuyers. The average 30-year mortgage rate hovered just below 7% this month, which could continue to weigh on demand in 2025.
“It won’t be a home-run year in housing, but it looks like it’s going to be slightly better, and more buyers are adjusting to these higher rates, especially because of higher inventory levels,” said Hannah Jones, Senior Economic Research Analyst at Realtor.com.”
The next Case-Shiller report will give us a read into the first month of 2025. Winter is generally a quiet time for home buying, due to slower home buying activity due to seasonal factors.
However, economists will be watching to see how buyers react to the new administration and new policy changes. Any shifts in mortgage rates, housing supply and consumer confidence could influence buyer decisions. If the market remains sluggish, it could signal continued affordability challenges.
“I don’t think life comes back into the market in any meaningful way until we’re closer to 6%, and affordability is going to remain a very severe problem,” said Mark Zandi, Chief Economist at Moody’s Analytics. He added that mortgage rates could stay high due to Federal Reserve policy and broader political uncertainty.