January 28, 2025

The seasonally adjusted Case Shiller Index of Home Prices in 20 cities fell 0.1% in November after having declined 0.2%  in October. It has risen 4.3% in the past year.

Brian Luke, Head of Commodities, Real &P Digital Assets said, “With the exception of pockets of above-trend performance, national home prices are trending below historical averages,” s

The National Index which is a slightly broader measure of home price increases fell 0.1% in November after declining 0.2% in October The year-over-year increase for this series is 3.8%.

What about housing affordability?  There are three pieces to this equation.  First, as noted above, home prices should  rise slowly in the months ahead.

Second, mortgage rates are currently at 6.9%.  We believe that mortgage rates should decline to 5.9% by the end of 2025 as inflation slows a bit farther and the Fed lowers short rates..

Third, job gains and wage hikes are boosting consumer income although inflation is eroding the nominal increase in income to some extent.  Even so, real disposable income has been rising rapidly in recent months and has climbed by 2.6% in the past year.

The housing affordability index came in at 99.0 in November which means that potential buyers had 1.0% less income than was necessary to purchase a median-priced home.  With income continuing to rise slowly,  mortgage rates declining, and prices rising slowly, that purchaser of a median priced home should have 15% more income than required to purchase that median-priced home by the end of next year.  That should put some spark back into both new and existing home sales.

After reaching a record low level, the supply of existing homes available for sale  has begun to climb and is now at 3.3 months.   As builders step up the pace of production the supply of available homes should increase somewhat as the year progresses.  If that is the case, home prices should rise more slowly in the months ahead.

We expect GDP to grow by 2.5% in the fourth quarter of last year and 2.9% in 2025.  The ratio of consumer debt to income remains very low.   The economy keeps cranking out jobs and wages keep rising slowly which should boost consumer income and spending.  Mortgage rates are likely to fall somewhat in the months ahead.   The stock market is at a record high level.   The Fed will will continue to ease slowly for at least another year.

The shelter component of the CPI seems to closely track the Case Shiller change in home prices with a lag of about a year.  As a result, the shelter component of the CPI which has increased 4.6% in the past year should slow further as the year progresses, which should allow the core CPI to resume its slowdown.

Stephen Slifer

NumberNomics

Charleston, SC