After eight months of price declines, U.S. home prices were down by 5.1% compared with the spring 2022 peak
Following the housing market freefall at the end of 2022, the decline in mortgage rates in December and early January helped to revive some much-needed optimism for the housing market. In response to lower rates, home sales posted strong monthly gains in both January and February, suggesting that pent-up buyer demand is responding to mortgage rate movements.
Given the mortgage investor market response since the Federal Reserve’s March meeting, home price growth may surprise to the upside if mortgage rates remain favorable, especially in light of continued supply constraints. Nevertheless, the ongoing volatility in mortgage rates and the effects of the recent banking crisis could put a damper on the spring homebuying season, particularly if credit tightening impacts mortgage availability and consumer confidence takes another hit.
In January, the CoreLogic S&P Case-Shiller Index posted a 3.8% year-over-year increase, down from a 5.6% gain in December, marking the ninth straight month of decelerating annual home price growth. With the sharp decline in home price growth over the year, January’s annual increase was the lowest since before the COVID-19 pandemic started in the winter of 2019 (Figure 1).
Also, the non-seasonally adjusted month-to-month index posted its eighth consecutive month of declines, down by 0.55% in January from a 0.84% decrease in December. Between 2015 and 2019, the monthly index changes from December to January have been generally flat, showing slight declines in prices of 0.03% between the two months (Figure 2). Monthly price decreases have once again slowed, as mortgage rates took a turn in December.
Monthly price changes are likely to slow further or even post slight increases due to seasonality and relatively lower mortgage rates as the spring homebuying season begins. Cumulatively, home prices in the national index are down by 5.1% from 2022’s peak. While annual gains are still positive, further slowing of price growth, according CoreLogic’s Home Price Index (HPI) forecast, will lead the index to post annual declines in the spring of 2023.
Some markets will see more significant price declines in 2023, though decreases are expected to remain regionalized and specific to metro areas that saw relatively more price growth during the pandemic. Based on CoreLogic’s latest HPI, 33 metro areas recorded year-over-year price declines in January, with most of them located in California and pandemic boomtowns such as Coeur d’Alene, Idaho; Boise, Idaho and Reno, Nevada.
The 10- and 20-city composite indexes followed the same decelerating trend in January — both up by 2.5% year over year, respectively. Slowing appreciation was slightly more evident in the 20-city index since it includes more affordable markets that are being hit harder by declining buyer purchasing power. In addition, metros included in the 10-city index, such as New York and Chicago, have maintained relatively stronger housing demand over the winter as the return to cities and offices continues. The 10-city index is down by 17.3 percentage points since last spring’s peak, while the 20-city index declined by 18.7 percentage points.
Compared with the 2006 peak, the 10-city composite price index is now 37% higher, while the 20-city composite is up by 44%. Adjusted for inflation, which continues to remain concerningly elevated, the 10-city index is now down by 5%, while the 20-city index shows no change compared with its 2006 high point.
Figure 1: January Home Price Gains Were the Slowest Since December 2019
Figure 2: Month-to-Month Price Declines Were Below Average in January
Despite the rapid slowing of the national index to single-digit growth, there are still several metro areas that posted double-digit increases. Miami again recorded the strongest annual home price growth among the 20 tracked markets for the sixth straight month, increasing by 13.8% in January but down from December’s non-seasonally adjusted rate of 15.9%. Tampa, Florida again ranked second, recording a 10.5% year-over-year gain in January, down from 13.8% in December.
Atlanta posted the third-highest increase, at 8.4% in January, while Charlotte, North Carolina showed an 8.1% gain. While San Francisco and Seattle both continued to post annual declines, down by a respective 7.6% and 5.1% in January, they were joined by San Diego and Portland, Oregon, both of which posted respective annual declines of 1.4% and 0.5% in January. San Francisco Seattle, San Diego and Phoenix have all seen deceleration of over 30 percentage points in price growth since their peaks last spring.
In January, all 20 metros continued to experience decelerating annual gains (Figure 3). San Francisco and Tampa posted the largest monthly price deceleration, both down by about 3.4 percentage points. Seattle showed the third-largest slowdown, down by 3.3 percentage points, followed by Dallas, which was down by 3 percentage points since December. Washington, Boston and Chicago saw the smallest cooling in year-over-year home price gains compared with December.
Figure 3: Deceleration in Year-Over-Year Home Price Growth Seen in All 20 Metros
Slowing price growth across all price tiers similarly persisted through the end of the year. The low tier was up by 3.7% in January, the middle tier showed no gain and the high tier rose by 2.5%. The high tier showed the largest deceleration in annual gains compared with the spring 2022 peak, down by 21.6 percentage points. This is a similar trend observed in CoreLogic’s Single-Family Rent Index and may reflect the relative greater mobility of higher-income households during the pandemic, a trend that has since waned.
In addition, the relative strength of low-tier price growth could reflect continued pressure from multiple parties, including investors and owner-occupied buyers, as well as a stubbornly low inventory of homes for sale. The latest CoreLogic data suggests that the investor share of home sales remained steady at the end of 2022, despite the slowdown in overall sales and the number of investor purchases. At the same time, new listings have continued to decrease and are trending 30% below 2022 levels and 50% lower than 2019 levels.
The month-over-month comparison of appreciation by price tier and location also reveals relative changes in demand across the country. From December to January, most price tiers in tracked metros showed decelerating monthly gains, except increases in the high tier in Miami and Boston. In general, areas in the Northeast and Midwest, such as Boston and Chicago, that fared relatively worse during the pandemic are seeing renewed buyer demand and relative resilience in home prices.
On the other hand, pandemic boomtowns such as Las Vegas, Phoenix and Portland are posting relatively larger price declines in the low tier given the affordability crunch brought on by rapid price gains combined with the surge in mortgage rates. Miami’s high-tier strength reflects continued out-migration from the Northeast, particularly among higher-income households.
The average monthly price declines for low-tier and medium-tier homes were both 0.8%, though that number is not seasonally adjusted. High-tier prices declined by 0.7% month over month on average. All three price tiers saw smaller monthly declines in January than in previous months (Figure 4).
Figure 4: Monthly Price Declines Average -0.8% for Low and Medium Tiers and -0.7 for High Tier
Finally, January home prices declined in all markets compared with their respective peak months in 2022. San Francisco and Seattle posted the largest declines — down by 17% and 16%, respectively. New York saw the smallest drop, down by 2%, followed by Atlanta and Miami, which were both down by about 3%. Overall, home prices dropped by 5.1% from the spring 2022 peak (Figure 5).
Figure 5: January Prices Were Down 5.1% From 2022 Peak
The housing market forecast depends greatly on the direction of mortgage rates, as consumers have responded positively to lower rates every time they recede. Thus, the spring homebuying season will depend on how mortgage rates and credit availability respond to the recent banking crisis and the resulting economic fallout.