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Home price gains continue to ease amid elevated mortgage rates and rising inventories of homes for sale. The S&P Cotality Case-Shiller U.S. National Home Price Index, which tracks the price of existing homes across the nation, rose 1.9% in June from a year earlier, down from a 2.3% annual gain in the previous month. On a month-over-month, seasonally adjusted basis, home prices actually fell by 0.3%. While affordability issues continue to weigh on demand, a still-low supply of homes for sale is supporting continued price growth, albeit at a slower pace than in recent years. New York reported the strongest gains over the past year, followed by Chicago and Detroit. Housing markets that saw strong price appreciation during the pandemic, such as Phoenix, Tampa and Dallas, are now seeing price declines.
A drop in building permits points to a slowdown in single-family construction over the next few months. Total housing starts rose 5.2%, to 1.43 million annualized units, in July. The increase was largely driven by a 9.9% rise in multifamily starts. Single-family starts rose 2.8%. Single-family permits ticked up a modest 0.5%, breaking a five-month streak of declines. Meanwhile, multifamily permits fell 8.2%. Single-family permits have fallen 12.2% since February, while multifamily permits are up 1.6%. A downtrend in single-family permits points to the declining trajectory of home construction over the coming months, as builders continue to deal with high financing costs, elevated economic uncertainty and unfavorable supply conditions due to the volatile U.S. trade policy under the Trump administration. Meanwhile, affordability challenges are boosting rental demand and supporting a turnaround in multifamily development.
New-home sales are flat as affordability issues for potential buyers persist. Sales dipped 0.6% in July to a seasonally adjusted annualized rate of 652,000 units. Stubbornly high mortgage rates, along with the rising inventory of existing homes and cooling price gains, show that builders of single-family homes are facing mounting headwinds. The use of price cuts and mortgage rate buydowns by builders has weighed on prices of new homes. The median price of a new home now stands at $403,800, down 5.9% from a year ago. While the new-home market has been less sensitive to changes in mortgage rates, thanks to the incentives offered by builders, mortgage rates staying above 6% will likely continue to discourage some buyers in the months ahead. The inventory of new homes has risen 7.3% over the past 12 months. At the current sales pace, that inventory would last 9.2 months.
Existing-home sales bounced back this summer, but buying activity remains sluggish. Sales of previously owned homes rebounded 2%, to 4 million annualized units, in July. Sales continue to run at a slow pace as buyers contend with elevated financing costs, high home prices and relatively low inventories. Housing supply has made a meaningful recovery during the past couple of years as housing market conditions have relaxed from the highly competitive, post-pandemic rush. Although the number of homes on the market is still below prepandemic levels, inventory has fully normalized on a months-of-supply basis. The total inventory of existing homes on the market rose 15.7% in July from a year ago. This translates to 4.6 months of supply at the current sales pace, down from 4.7 months in June.
