Home Prices Continue to Rise Yearly Despite January Dip

Home prices edged slightly downward in January but still managed to post year-over-year gains, according to the S&P CoreLogic Case-Shiller national housing index released on Tuesday.

The annual pace of increase for the nine-region national index rose to 6% from 5.6% a month earlier. Out of a 20-city composite index, San Diego led with an 11.2% yearly gain, followed by Los Angeles at 8.6%. Portland, Oregon – the lowest among the 20 cities – eked out a 0.9% increase.

For the month, prices nationally decreased by 0.1% in January from December.

“U.S. home prices continued their drive higher,” said Brian D. Luke, head of commodities, real & digital assets at S&P Dow Jones Indices. “Homeowners most likely saw healthy gains in the last year, no matter what city you were in, or if it was in an expensive or inexpensive neighborhood.”

Bright MLS Chief Economist Lisa Sturtevant said the steady increase in prices is making affordability difficult for many would-be buyers.

“Housing affordability is a major concern for many prospective home buyers, with high home prices keeping some would-be buyers out of the market altogether,” she said. “Despite recent reporting on realtor commissions, economic fundamentals explain why home prices continue to rise. There are simply too few homes available for sale to meet demand.”

The S&P metrics mark the second run of housing data out this week, following Monday’s news that new home sales dipped slightly in February to an annual pace of 662,000. That was below estimates of 675,000, although January’s number was revised upward to 664,000. Overall, new home sales are running 5.9% higher than a year ago.

The housing market is facing the twin challenges of elevated mortgage rates – though they are down from a peak seen last fall – and a shortage of supply as many existing homeowners are reluctant to sell while enjoying sub-4% rates.

“Despite improvements in for-sale inventory, buyers saw nearly 40% fewer homes for sale than pre-pandemic, which kept upward pressure on home prices,” said Hannah Jones, senior economic research analyst for Realtor.com.

Housing has been a significant contributor to overall inflation in the past couple of years, but part of the problem is that the way the government accounts for the cost of housing has serious lags – so when the rate of price appreciation does slow down, it often takes months for it to affect the official data. Federal Reserve Chairman Jerome Powell said last week that he expects “housing services inflation will come back down as current market rents are suggesting.”

However, the continued strength in home prices and other assets like stocks are proving that the U.S. economy continues to deliver a performance that’s both surprising economists and enriching consumers.

“The runup in stock and house prices since the pandemic is eye-popping,” Mark Zandi, chief economist at Moody’s Analytics, posted on social media Sunday. “Stocks are up 60% and homes 50%. Household net worth has swelled by $300k per household. While only 2/3 of households are benefiting, this is big money and a big part of the U.S. economy’s current success.”