After nine months of steadily increasing housing prices in the U.S., price growth has now decreased for the second month in a row.

Housing prices were on the rise for a long stretch of nine months in 2023 — until November. That month’s small drop of 0.2 percent continued into December: S&P CoreLogic’s latest Case-Shiller U.S. National Home Price NSA Index, released February 27, 2024, reports that home-price growth dropped in December 2023 by 0.4 percent. In fact, 17 of the 20 major metro markets measured by Case-Shiller reported month-over-month price decreases.

Case-Shiller Index still up compared to last year

While the month-over-month numbers show a slight decrease, the index is still up by 5.5 percent from last December. The 10- and 20-city composites each also rose year-over-year, by 7.0 percent and and 6.1 percent respectively.

“U.S. home prices faced significant headwinds in the fourth quarter of 2023,” said Brian D. Luke, head of commodities, real & digital assets at S&P DJI, in a statement. “However, on a seasonally adjusted basis, the S&P Case-Shiller Home Price Indices continued its streak of seven consecutive record highs in 2023. Looking back at the year, 2023 appears to have exceeded average annual home price gains over the past 35 years.”

Regional fluctuation continues

“All 20 markets reported yearly gains for the first time this year,” Luke said, with 10 of 20 markets beating prior records in December. San Diego led the pack with an 8.8 percent year-over-year increase, followed by an 8.3 percent gain in both Los Angeles and Detroit. The next highest gains were reported in Chicago, up 8.1 percent, and Charlotte, up an even 8 percent. Despite the top-performing market being in the West, the Midwest and Northeast were the best-performing regions with 6.7 percent gains each.

The Fed and the housing market

The Federal Reserve’s aggressive moves to combat inflation — with 10 consecutive rate hikes over 2022 and 2023 — have put upward pressure on mortgage rates. While the Fed doesn’t directly set mortgage rates, the mortgage market’s interpretations of the central bank’s moves influence how much you pay for your home loan.

The long period of low mortgage rates following the Great Recession came to an end in 2022. In June 2022, rates topped 6 percent for the first time since 2008. The upward trend continued through October, when rates hit a 23-year high of 8 percent. “The house price decline came at a time where mortgage rates peaked,” Luke noted last month.

Steve Reich, division president at Go Mortgage in Pennsylvania, highlights the impacts that these trends have on the housing market. “As the Fed worked to get inflation under control, higher interest rates tempered what many homebuyers could afford and, in turn, softened home sales,” he said in a statement.

Higher rates also exacerbate the housing shortage, stopping many homeowners from selling when they otherwise might — and thus keeping those homes off the market and out of the supply of available housing.

“The remarkable rise in mortgage rates is acting as a kind of golden handcuffs,” says Mark Hamrick, Bankrate’s senior economic analyst. Higher rates are “limiting the desire and some of the ability of people to move out of the homes they currently own. That further pressures housing inventory, adding insult to supply injury.”

However, rates have begun trending back downward. As of February 21, 2024, the average 30-year mortgage rate sat at 7.13 percent.

What it means for homebuyers and sellers

The current market has proved challenging on both sides of the real estate transaction — and unless we see a significant drop in either home prices or mortgage rates, both buyers and sellers will need to go with the flow. “For prospective sellers, the new status quo dictates they remain flexible on price, given the extraordinary challenges posed by the sharp increase in mortgage rates,” Hamrick says.

“Those who are very motivated to purchase a home should be prepared for the sticker shock associated with the increased expense of financing the purchase,” he continues. “Part of the flexibility that may be required includes seeking a possible downgrade of footprint or quality of home, along with the neighborhood, in order to achieve an affordable purchase.”

Both buyers and sellers will want to keep a very close eye on mortgage rates in the coming months. “With home prices edging down for both the fourth quarter and December, it seems increases may have crested for now,” said Robert Frick, corporate economist with Navy Federal Credit Union. However, he continued, “If mortgage rates dip this year as expected, price increases may again revive as home demand improves.”

Reich emphasizes that buying a home in today’s market, while difficult, is still possible. “The average time active listings stay on the market is getting longer, resulting in a slightly less competitive market,” he says. National Association of Realtors data proves that out: The median days-on-market length was 36 days in January, up both month-over-month and year-over-year, which gives buyers more time to make an informed, well-considered decision. “And that’s good news for homebuyers who are still in the game.”