Home prices hit new high in December but show signs of cooling: Case-Shiller

Home prices hit a record high in December despite high borrowing costs that continue to put housing out of reach for many Americans, according to the latest S&P CoreLogic Case-Shiller Indices report.

Home prices now stand 5.5% above where they were this time last year. The 10-city composite increased by 7% annually, up from a 6.3% increase in the previous month. At the same time, the 20-city composite posted a rise of 6.1%, up from a 5.4% increase in the previous month. The growth in home prices comes even as borrowers struggle with high mortgage rates. 

"Looking back at the year, 2023 appears to have exceeded average annual home price gains over the past 35 years," S&P Dow Jones Indices Head of Commodities Brian Luke said. "With trend growth at the national level of 4.7%, a 5.5% return demonstrates solid, steady growth."

"While we are not experiencing the double-digit gains seen in the previous two years, above-trend growth should be well received considering the rising costs of financing home mortgages," Luke continued. 

One way to take advantage of your home's equity is using a cash-out refinance to help you pay down debt or fund home improvement projects. Visit Credible to find your personalized interest rate without affecting your credit score.

NEARLY 89% OF U.S. HOMEOWNERS WITH MORTGAGES HAVE AN INTEREST RATE BELOW 6%: REDFIN

These cities saw the most significant house price gains

San Diego, Los Angeles and Detroit led the way for the fastest-growing cities in the U.S. San Diego reported the highest year-over-year growth, with an annual increase of 8.8% in December, followed by Los Angeles and Detroit, each with an 8.3% increase. 

Portland saw the smallest gain in December, with home prices climbing just 0.3% from the prior year. However, December's report marked the first time in 2023 that all 20 cities reported a year-over-year gain.

Despite the annual gains, home prices nationwide showed some softening on a month-to-month basis, likely in response to high mortgage rates and a lack of housing supply. Home prices decreased by 0.4% in December from the previous month. The 10-city composite declined by 0.2% and the 20-city composite decreased by 0.3% – the indices measure home prices in major metros across the country.  

Mortgage rates hit near 8% in November and dropped to the mid-6% range by the end of December. The consensus is that mortgage rates will continue to decline in 2024 as the Federal Reserve begins to dial back interest rates. This is likely to convince more consumers to return to the market to chase a limited housing supply, according to CoreLogic Chief Economist Selma Hepp.

"While S&P CoreLogic Case-Shiller Index continues to show resiliency of home prices against surging borrowing costs, it also highlights continued headwinds for the housing market, namely elevated mortgage rates and severely lacking inventory of existing homes for sale," Hepp said. "And as mortgage rates continue to flirt in the 7% range, it will be difficult to convince existing homeowners to move right now." 

"Nevertheless, as the recent surge in mortgage application data has shown following a drop in rates, buyers are anxiously waiting to jump in the market as soon as mortgage rates fall," Hepp continued. "That means that 2024 will show another year of home price highs."  

Homebuyers can find the best mortgage rate by shopping around and comparing your options. You can visit an online marketplace like Credible to compare rates, choose your loan term and get preapproved with multiple lenders at once.

MILLENNIALS ARE DESPERATE TO BUY A HOME, MOST WILLING TO PAY A MORTGAGE RATE ABOVE 7%: SURVEY

Fed in no rush to lower rates

Homebuyers will have to wait longer before seeing a meaningful drop in mortgage rates. Minutes from the most recent Federal Open Market Committee (FOMC) meeting revealed that officials who expressed optimism and caution on inflation are in no rush to cut interest rates. FOMC officials noted that no rate cuts would come "until they had gained greater confidence" that inflation was moving to the 2% target rate. 

"Most participants noted the risks of moving too quickly to ease the stance of policy and emphasized the importance of carefully assessing incoming data in judging whether inflation is moving down sustainably to 2%," the minutes said.

The Federal Reserve maintained the federal funds rate at a 22-year high of 5.25% to 5.5% but plans to lower rates starting this year. Fed officials have predicted at least three rate cuts this year, with interest rates expected to tick down to 4.6%, according to the central bank's updated economic forecasts in its Summary of Economic Projections (SEP). 

If you are looking to take advantage of the current mortgage rates by refinancing your mortgage loan or are ready to shop for the best rate on a new mortgage, consider visiting an online marketplace like Credible to compare rates and get preapproved with multiple lenders at once.

THIS IS THE #1 CITY FOR FIRST-TIME HOMEBUYERS, AND OTHER HOT US HOUSING MARKETS

Have a finance-related question, but don't know who to ask? Email The Credible Money Expert at moneyexpert@credible.com and your question might be answered by Credible in our Money Expert column.