The recent dynamics in the housing market reveal that rising supply coupled with slowing demand are finally leading to a moderation in home prices. According to the latest data from the S&P CoreLogic Case-Shiller Index released on Tuesday, home prices across the nation saw a modest increase of just 2.7% in April compared to the previous year. This marks a decrease from the 3.4% annual increase reported in March, representing the smallest gain in nearly two years.
It's important to note that the S&P Case-Shiller report is a three-month running average, reflecting prices up to April. More recent analyses, such as those from Parcl Labs, indicate that home prices nationally have remained largely flat year-over-year. The S&P Case-Shiller index also highlights a significant deceleration in price growth across its 10- and 20-city composites, both of which are now considerably below their recent peaks.
A noteworthy aspect of this report is that much of the annual price increase noted in April was realized within just the last six months. This suggests that the spring market significantly influenced prices, rather than a steady rise throughout the year. Furthermore, this cycle has led to a reshuffling of regional performance, with traditionally stable markets in the Midwest and Northeast now outpacing areas that were once favored during the pandemic.
In a striking turnaround, New York has experienced the largest increase in home prices, achieving a 7.9% annual gain. Chicago followed closely with a 6% increase, and Detroit reported a 5.5% rise. This shift contrasts sharply with the earlier years of the pandemic, where the Sun Belt states enjoyed significant demand and rapid price appreciation. Currently, cities like Tampa and Dallas are witnessing price declines of 2.2% and 0.2% respectively, while San Francisco's prices remain stagnant.
Another critical factor influencing the housing market is the recent spike in mortgage rates, which exceeded 7% in April but have since stabilized just below that threshold. These elevated rates are pushing monthly payments to generational highs, effectively pricing out a considerable number of buyers, particularly first-time homebuyers. According to the National Association of Realtors, the share of first-time buyers in May sales has dipped to just 30%, down from the historical norm of 40%.
Despite the rising inventory of homes for sale, current supply levels remain below those seen before the pandemic. Data from Redfin indicates that only 6% of sellers are at risk of incurring a loss, a slight increase from a year ago, yet still historically low. While it is clear that home prices are softening, they are far from the significant declines observed after the subprime mortgage crisis and the Great Recession over a decade ago.
The ongoing supply-demand imbalance continues to act as a price floor, preventing the sharp corrections that some market analysts had feared. Existing homeowners are generally reluctant to give up their sub-4% mortgage rates, and new construction efforts have struggled to keep up with demand. According to Nicholas Godec, head of fixed income at S&P Dow Jones Indices, this persistent supply constraint indicates a maturing market increasingly influenced by fundamental economic factors rather than speculative trends.
