US home prices rose at the fastest pace in months, reaching a new all-time high in January, according to data released on Tuesday, which highlights how the housing shortage, combined with high mortgage rates, continues limiting accessibility.
The S&P CoreLogic Case-Shiller U.S. national home price index rose 6% in January from a year earlier, accelerating from a 5.6% annual increase in December. It is the biggest annual increase since the end of 2022.
“For the second month in a row, all cities reported annual price increases, with San Diego rising 11.2%,” wrote Brian Luke, head of commodities, real and digital assets at S&P Dow Jones Indices, in a statement.
“On a seasonally adjusted basis, home prices continued to surpass previous highs reached last year,” he noted.
Housing prices have reached new heights amid a confluence of factors; specifically, decades of underconstruction have led to a shortage of millions of homes. In recent years, efforts to increase this inventory have been stymied by rising costs as well as sharply rising interest rates.
The Federal Reserve’s series of rate hikes aimed at curbing demand and slowing inflation resulted in average mortgage interest rates rising to nearly 8% last year. Higher rates stifled demand and kept home sellers on the sidelines, further limiting supply.
The 30-year fixed-rate mortgage averaged 6.87% for the week ending March 21, according to data from Freddie Mac.
It’s cheaper to rent than buy
Mortgage rates are expected to fall further this year – especially if the Fed starts cutting rates as planned – however, they may not fall much: economists at PNC Financial Services group expect them to be in the 6.5 range. % in the fourth quarter.
“This means housing affordability will still be low this year,” Ershang Liang, economist at PNC Financial Services Group, told CNN.
In fact, a separate report released Tuesday showed that it’s more affordable to rent than buy in America’s biggest cities.
Realtor.com’s February Rent Report found that monthly rent was cheaper than paying a mortgage in the 50 largest U.S. cities.
In February, the cost of buying a starter home in these cities was $1,027 more than renting one. This represents a difference of US$865 in February 2023.
Austin, Texas; Seattle; Phoenix; San Francisco; and Los Angeles were the top five metro areas with the biggest savings on renting versus buying, according to the Realtor.com report.
High rates weigh heavily on many metropolitan areas
In California, it’s no surprise that cities facing the biggest housing shortage are seeing some of the sharpest increases in home prices, Liang said.
“(In Los Angeles and San Diego), one new single-family license is issued for every 11 new jobs, so we are seeing strong job growth in those locations, but the pace of single-family homes has not been able to keep up with the job gains. job there,” she said.
Excluding seasonal adjustments, 17 of the 20 metropolitan areas saw price declines from December to January. San Diego, Los Angeles and Washington, D.C. all recorded positive gains. Home prices in Minneapolis fell 2.4% during the three months ending in January, according to the report.
Cities like Phoenix, Dallas and Denver, which have seen slower price growth, or even a monthly price drop, are likely seeing a correction after previous years of sharp price increases, Liang said.
Source: CNN.
