Home prices ended 2023 at a record high as limited inventory inched prices up and buyer confidence grew thanks to a modest reduction in mortgage rates. 

 The December S&P CoreLogic Case-Shiller Indices capped a year that started slowly but ultimately saw growth across every index. The 10-cities index, which measures prices in the biggest metro areas, closed out the year with a  7.0% increase, while nationwide prices grew 5.5%, up from 5% the month prior, according to Tuesday’s report.

 Rising home prices are a promising sign for the economy, as experts remain hopeful that the country will avoid a recession. However, a continuing run on high home prices and limited inventory may lead to a slowdown in overall sales if mortgage rates remain high and wages struggle to keep up. Housing inventory remains tied up by would-be sellers afraid of the high carrying costs of new, higher mortgage rates. An overwhelming majority of Americans hold mortgages with rates below 4%.

 “Nobody is going to trade a three percent mortgage for an eight percent mortgage,” Troy Ludtka, an economist at SMBC Nikko Securities America Inc, said. 

 Ludtka said people would need to start to see mortgage rates below 6% before listing activity starts to pick up. He blames the extremely low interest rates – a hallmark of post 2008 fiscal policy – as a driving factor that led to a “massive run on price.” 

“I expect prices to come down at some point in the next year,” he said.

Rising home prices are great for existing homeowners who might prefer to avoid any market correction. But for would-be buyers, who would like to see more accessible price points, feeling priced out of the market is a cause for concern.

“This report shows we are not in a recession,” said Peter Morici, an economist and professor at the University of Maryland, who added that the housing market has done its part to usher the economy into soft landing territory.

“Big cities are coming back,” he said, noting that the uptick in housing prices – and overall economic rebound – isn’t being equally shared by all. 

Morici stressed that housing markets fare better when near areas of wage growth, a notion supported by the report. Los Angeles and New York are up 8.3% and 7.6% respectively over the past year. Certain markets, with diverse earners, across industries, are better suited to affording consistently rising prices. 

 “Markets that reinvent themselves like Manhattan and San Francisco,” largely known for being cross-sections of earners from tech, arts, hospitality and finance sectors, fetch high prices with little sign of stopping, Morici said.

 San Diego’s housing market had the strongest finish with an 8.8% price increase. 

Portland, Ore., eked out an uptick in prices to close out the year at 0.3% after eleven consecutive months of negative growth. 

The housing market has much to look forward to in 2024, namely a rate cut by the Fed.  If rate cuts arrive in June, as expected, lower interest rates might send the housing market into a frenzy as buyers and sellers race to make up for time lost due to 18 months of above 6% mortgage rates.

 “Housing continues to appreciate ahead of inflation,” Morici said. “Housing is reflective of the economy.”