Home-Price Growth Accelerates in the US, Fueled by Drop in Mortgage Rates

Home-price growth in the US accelerated in December, marking a significant uptick in the real estate market following a period of plummeting mortgage rates. According to data from S&P CoreLogic Case-Shiller, prices nationally rose by 5.5% from the previous year, surpassing the 5% annual gain seen in November.

Among the 20 cities tracked, San Diego experienced the largest year-over-year gain at 8.8%, followed closely by Los Angeles-Orange County and Detroit, each with an 8.3% increase. The surge in home prices can be attributed to a combination of factors, including a sharp decline in mortgage rates towards the end of the year, which fueled demand among buyers amidst a limited supply of homes for sale.

Brian Luke, head of commodities, real and digital assets at S&P Dow Jones Indices, noted that the performance of the US housing sector in 2023 exceeded average annual home-price gains over the past 35 years. This positive trend has not only boosted consumer confidence but has also contributed to an increase in household wealth for homeowners.

However, Bill Adams, chief economist for Comerica Bank, pointed out that the current housing market is facing challenges due to a mismatch between supply and demand. While homeowners are holding off on selling due to low mortgage rates and tax assessments from previous years, potential buyers are grappling with high mortgage rates and soaring home prices, making affordability a key concern.

Despite these challenges, Adams believes that the balance between supply and demand is more normalized compared to the frenzied market conditions seen in 2020 and 2021. With a strong employment outlook and stable market conditions, he predicts that home prices are likely to continue rising in 2024, albeit at a slower pace than in 2023.

Overall, the housing market in the US remains robust, with further price increases expected in the coming year. Stay tuned for more updates on this evolving trend.