Home prices likely climbed in January, according to one closely watched measure. That trend will continue but gains will narrow by the end of the year, some economists say.
The S&P CoreLogic Case-Shiller Home Price index tracking changes in 20 of the nation’s large cities is expected to have been 6.6% higher in January than it was one year prior, according to FactSet consensus estimates. A seasonally adjusted index measuring month-to-month price gains is estimated to have risen 0.15% from December’s levels. The reading will be released Tuesday at 9 a.m.
A low supply of homes for sale, combined with a relatively easy comparison with prices at the same time last year, look set to keep prices strong. If the estimates are correct, January’s annual home price increase would be the largest since November 2022, according to December’s Case-Shiller data.
The median home in February sold for $384,500, up 5.7% from the same month in 2023, according to the National Association of Realtors—the greatest price increase in the trade group’s data set since October 2022.
data suggests prices have remained strong in March: over the four-week period ended March 17, home sale prices rose 5.3%.
Industry economists expect gains will slow later this year. The Mortgage Bankers Association estimates that home prices in the fourth quarter measured by the FHFA’s home price index will be 4.1% higher than one year prior—a slower growth rate than the anticipated 5.7% in the first quarter of this year.
expects its home price index to be 3.2% higher than one year prior at the end of the year, slower than an anticipated 7.2% first-quarter increase.
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That’s despite mortgage rates that remain higher than levels immediately before the pandemic. Higher rates and prices has made it harder for first-time buyers to enter the market. The share of buyers purchasing a previously owned home for the first time fell to 26% of all transactions in February from 28% the month prior, the National Association of Realtors said earlier this month.
Home values are stretched relative to their historic price-to-rent ratio, Mark Zandi, Moody’s Analytics’ chief economist, wrote in a Monday note. “That valuations have remained so high given the doubling in mortgage rates since just prior to the pandemic is especially surprising,” the economist wrote, adding that high home prices are supported by an undersupply of housing and the mortgage rate lock-in effect.
“For some semblance of normalcy to return to the housing market, something has to give—mortgage rates need to decline, incomes rise, and/or house prices cool considerably,” Zandi wrote. The most likely scenario is that prices move “more-or-less sideways” for one to three years. That would “allow corporate earnings and rents to catch up and valuations to normalize at least partially.”
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Write to Shaina Mishkin at shaina.mishkin@dowjones.com
