June 24, 2025

The seasonally adjusted Case Shiller Index of Home Prices in 20 cities declined 0.3% in April after having fallen 0.2% in March.  Prices have risen 3.4% in the past year.

The National Index which is a slightly broader measure of home price increases fell 0.4% in April after declining 0.3% in March.  The year-over-year increase for this series is 2.7%.

Nicholas Godec, Head of Fixed Income Tradables & Commodities at S&P Dow Jones Indices said ““The housing market continued its gradual deceleration in April, with annual price gains slowing to their most modest pace in nearly two years.  What’s particularly striking is how this cycle has reshuffled regional leadership—markets that were pandemic darlings are now lagging, while historically steady performers in the Midwest and Northeast are setting the pace. This rotation signals a maturing
market that’s increasingly driven by fundamentals rather than speculative fervor.”

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

Second, mortgage rates are currently at 6.8% and should remain close to that level at the end of 2025.

Third, job gains and wage hikes are boosting consumer income.  Real disposable income has climbed by 2.9% in the past year.

The housing affordability index came in at 101.0 in April  which means that potential buyers had 1.0% more income than was necessary to purchase a median-priced home.  With income continuing to rise slowly and with mortgage rates and prices about unchanged, a median income earning family  should have 10% more income than required to purchase that median-priced home by the end of this 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 4.6 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 be relatively unchanged in the months ahead.

After falling 0.2% in the first quarter, we expect GDP to grow by 3.9% in the second quarter and 2.2% 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 change very little  in the months ahead.

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 3.9% in the past year should slow further as the year progresses to perhaps 3.6% by yearend, which should allow the core CPI to resume its slowdown.

Stephen Slifer

NumberNomics

Charleston, SC