Home-price growth in the US accelerated in December, capping a period with a steep drop in mortgage rates.
Prices nationally rose 5.5% from a year earlier, according to data from S&P CoreLogic Case-Shiller. That’s larger than the 5% annual gain in November.
San Diego had the biggest year-over-year gain, at 8.8%, of the 20 cities tracked. Next was Los Angeles-Orange County and Detroit, each with an 8.3% increase.
December’s index tracks the final three months of 2023, a time in which 30-year borrowing costs soared to a two-decade high of 7.79% then fell sharply to end the year at 6.61%. The decline unleashed some pent-up demand among buyers who had to compete for a tight supply of homes listed for sale. The country’s persistent inventory shortage has helped push purchase prices ever higher.
“The term ‘a rising tide lifts all boats’ seems appropriate given broad-based performance in the US housing sector,” Brian Luke, head of commodities, real and digital assets at S&P Dow Jones Indices, said in a statement. “Looking back at the year, 2023 appears to have exceeded average annual home-price gains over the past 35 years.”
Rising prices is good news for homeowners, who see what is typically the biggest component of their household wealth increasing in value, said Bill Adams, chief economist for Comerica Bank.
“The [home price] stabilization and then increase in 2023 helped Americans feel better about their household financial situation and boosted consumer confidence,” he said in a statement.
But, he added, housing supply and demand are in a very weird spot.
“Supply is constrained by homeowners who locked in low mortgage rates and tax assessments years ago, who might sell in a normal market but are sitting on the sidelines in this one,” Adams said. “Demand is constrained by high mortgage rates, as well as high prices contributing to an overall tough picture for homebuying affordability.”
He said that with supply and demand both tamped down, the balance between the two is actually more normal than during the frenzied surge in housing demand in 2020 and 2021.
That balance, together with a strong employment picture in the economy, suggests that prices aren’t going to be cooling much, if at all, this year.
“It is likely to translate into further house price increases in 2024, but at a slower rate than in 2023,” he said.
Bloomberg and CNN contributed to this report