April 29, 2025

The seasonally adjusted Case Shiller Index of Home Prices in 20 cities rose 0.4% in both January and February.  Prices have risen 4.5% in the past year.

The National Index which is a slightly broader measure of home price increases rose 0.3% in February after climbing 0.6% in January.  The year-over-year increase for this series is 3.9%.

Nicholas Godec, Head of Fixed Income Tradables & Commodities at S&P Dow Jones Indices said “Even with mortgage rates remaining in the mid-6% range and affordability challenges lingering, home prices have shown notable resilience.  Buyer demand has certainly cooled compared to the frenzied pace of prior years, but limited housing supply continues to underpin prices in most markets. Rather than broad declines, we are seeing a slower, more sustainable pace of price growth.”

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 6.8%.  We believe that mortgage rates should decline to 6.5% by the end of 2025 as inflation slows a bit farther.

Third, job gains and wage hikes are boosting consumer income.  Real disposable income has climbed by 1.7% in the past year.

The housing affordability index came in at 102.2 in February which means that potential buyers had 2.2% more income than was necessary to purchase a median-priced home.  With income continuing to rise slowly,  mortgage rates declining, and prices about unchanged a median income earning family  should have 15% 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 4.0 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 0.3% in the first quarter, we expect GDP to grow by 2.5% in the second quarter and 1.9% 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 slightly 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 3.5% by yearend, which should allow the core CPI to resume its slowdown.

Stephen Slifer

NumberNomics

Charleston, SC