The S&P CoreLogic Case-Shiller report, which measures home prices nationally, is set to be released on Tuesday. After a record-breaking year in 2023 – home prices rose 5.5% to close out last year – economists are confident Tuesday’s report will continue to show much of the same with a few key takeaways. Here are five things to look out for:
Market Softening
Economists predict home prices will continue to increase as inventory remains low and sellers with low mortgage rates remain unmotivated to sell their homes and part ways with a sub 4% mortgage. Some markets will likely show signs of softening. Last month, the national and 20-city indices showed decreases for the month of January. Overall, seventeen markets declined last month. And after a long stretch of record-breaking price increases, the big story is the softening of several major markets. According to March’s report, Minneapolis is down 2.4% for the previous three months.
Prices Up But Not Everything Is Selling
More broadly, token market corrections won’t magically yield an affordable housing market overnight. However, economists say nuance across markets makes it difficult to suggest a one-size-fits-all fix for high prices. Some markets suffer from a lack of space to build, while others struggle with bureaucratic red tape and issues with zoning. Some economists predict Tuesday’s report will continue to tell the story of an emerging trend: Buyers are becoming more discerning, and overpriced homes are being sold for under asking. This is favorable for homeowners whose homes have increased in value but scary for would-be sellers as high lending rates have started to quiet some of the pandemic-era bidding wars.
Not Enough Homes
Inventory – the possible fix to the country’s housing shortage – remains painfully low. Housing inventory is around 20% lower than it was in November, according to data published by Realtor.com. And new construction can’t seem to catch up. Experts hope policymakers will look to address issues stemming from a lack of affordable housing. But caution that the magic combination of lower rate mortgages and shrinking home prices will only come if the country enters a recession. Markets like San Diego, where the average available inventory sits at half the national average, will need to see more work from lawmakers to address long-standing systemic issues, keeping housing prices high, to bring more affordable housing to a wider group of buyers.
Don’t Wait For Fed To Cut Rate
The June rate cut some experts said Powell teased earlier in the year looks like it’s on hold. This means a summertime bump in home prices won’t come from buyers looking to take advantage of better lending terms. Mortgage rates must come below 4% before the housing market will go gangbusters. And without a rate cut, many experts think this summer could be slower than last year. Sadly, after a record-breaking year of rising home prices, a less than stellar Case-Shiller will do little to motivate the Fed to do something about rates as it keeps its eye on the roaring labor market and taming inflation. Tuesday’s report might start a calmer stretch for the 10- and 20-cities indices, the indices that track home prices across the country’s largest markets.
Slowdown But No Plateau
A slowdown in home prices should be read as a breath-catching moment for the market; prices aren’t plateauing. But homeowners shouldn’t worry about a sudden decrease in home values, and would-be homeowners, priced out of the market, shouldn’t think it is their time to start waiting out a larger downturn. Economists say the current market for home prices shows an overall robust economy, and they do not anticipate a larger, substantive slowdown. With limited inventory, real estate investors may be keen to focus on new construction projects now that supply chain issues have waned a bit. Still, economists say that might prove less optimal given how expensive it is to leverage such projects.