Home prices slow again, but banking sector woes make it harder to get a mortgage: Case-Shiller

Annual home price growth slowed in January for the seventh consecutive month as high mortgage rates continued to stifle homebuyer demand, according to the latest S&P CoreLogic Case-Shiller Indices report.

Home prices across the U.S. increased by 3.8% annually in January, down from the 5.6% annual increase in December, Case-Shiller’s National Home Price NSA index showed. Home prices have fallen by 5.1% since the market peaked in June 2022. 

Prices have been cooling for seven months, but the decline in January was slightly smaller than in months prior. That was likely due to the recent dip in mortgage rates and a resulting jump in sales.

The 10-city composite rose 2.5% yearly, down from 4.4% in December. The 20-city composite also rose 2.5%, down from 4.6% in the previous month.

“January’s market weakness was broadly based,” Craig Lazzara, S&P Dow Jones Indices managing director, said. “Before seasonal adjustment, 19 cities registered a decline; the seasonally adjusted picture is a bit brighter, with only 15 cities declining,” Craig Lazzara, S&P Dow Jones Indices managing director, said. “With or without seasonal adjustment, most cities’ January declines were less severe than their December counterparts.”

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Less access to borrowing means home prices likely to keep dropping

Mortgage rates hovered between 6% to 7% at the start of the year after rising above 7% in November. The recent banking sector turbulence was met by further mortgage declines just in time for the spring homebuying season.

The lower mortgage rates coupled with continued softening in home prices helped boost purchase activity. Home sales jumped 14.5% in February from the month before to a seasonally adjusted annual rate of 4.58 million, registering the most significant monthly percentage increase since July 2020, according to the National Association of Realtors (NAR).

However, the banking sector woes coupled with the Federal Reserve’s ongoing interest rate hikes will likely make it harder for borrowers to secure a mortgage loan at an affordable rate, which will continue to pressure housing prices for the next several months, Lazzara said. 

“Stricter credit requirements and a higher Federal Funds rate mean that it may be both harder and more expensive to borrow money, which both move the economy in the direction of slower growth and toward the 2% inflation target,” Realtor.com Economic Data Analyst Hannah Jones said in a statement. “This combination of events impacts the housing market by keeping mortgage rates higher than last year, and by making it harder for buyers to secure a loan. 

“More expensive, less available borrowing, especially with an unclear economic outlook, is likely to continue to limit buyer demand,” Jones continued.

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This city saw prices rise the most

On a monthly basis, home prices fell across the nation in January, according to the Case-Shiller report. The national home price index dropped 0.5% month-over-month and the 10-city and 20-city composites fell by 0.5% and 0.6%, respectively, before seasonal adjustment. But annually, many cities continued to see home prices rise. 

Miami, Florida, was the best-performing city in January, which saw prices rise 13.8% year-over-year. Tampa, Florida and Atlanta, Georgia, saw the second and third-highest increases, rising 10.5% and 8.4%, respectively.  

“At the other end of the scale, one of the most interesting aspects of January’s report is the continued weakness in home prices on the West Coast, as San Diego and Portland joined San Francisco and Seattle in negative year-over-year territory,” Lazzara said. “It’s therefore unsurprising that the Southeast continues as the country’s strongest region, while the West continues as the weakest.”

If you are looking to reduce your expenses, you can consider refinancing your home loan to lower your monthly payment. You can visit Credible to compare multiple mortgage lenders at once and choose the one with the best interest rate for you.

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