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Home-price growth is showing signs of flattening. The S&P Cotality Case-Shiller U.S. National Home Price Index, which measures the price of existing homes across the nation, posted a 0.8% annual gain in April, up slightly from a 0.7% rise in the previous month. On a month-over-month, seasonally adjusted basis, national home prices dipped 0.1%. Midwest and Northeast housing markets are seeing moderate gains, while many Sun Belt and Western metro areas are seeing price declines. Chicago reported the strongest gains over the year, followed by New York and Cleveland. At the other end of the market, Seattle saw the steepest decline in home prices, followed by Denver and Tampa.
Building conditions remain challenging for builders. Total housing starts fell 15.4% in May, to an annualized rate of 1.177 million units, following a revised 8.5% decrease seen in April. The monthly decline was largely driven by a 41.6% drop in multifamily starts, which accompanied a 1.9% decrease in single-family construction. Following this sharp pullback, overall housing starts are now 8.7% lower than they were a year ago. With the inventory of completed homes remaining elevated, builders are struggling with a bloated backlog of unsold inventory. Meanwhile, they continue to offer price cuts and other incentives to move completed homes, though doing so has compressed profit margins. Builders say high energy costs from the unexpected oil-price shock this spring and a lack of land-use deregulation are also adding to their cost pressures.
New-home sales continue to trace a downward trend as buying conditions worsen. New-home sales fell 7.3% in May from the previous month to 580,000 annualized units. Sales declined sharply in the West and the South. Higher mortgage rates and near-historic low affordability are squeezing household budgets and keeping buyers on the sidelines. The supply of new homes for sale remains elevated, reaching 10.3 months of supply at May’s selling pace. The median price of a new home rose to $424,900.
By contrast, existing-home sales grew by more than expected in May, marking a second consecutive monthly increase. Sales of previously owned homes rose 3.2% to 4.17 million annualized units in May, on the heels of an upwardly revised April gain. Single-family sales drove the overall gain, while multifamily sales remained flat. However, the recent gains likely represent a near-term ceiling for existing-home sales, rather than the start of a sustained trend, because the recent rise in Treasury yields threatens to push mortgage rates even higher over the summer.
