High mortgage rates affected home prices over two months as buyers closed on deals in December that were negotiated in November.
Redfin found that home prices climbed only 0.4% in December, the smallest increase since June.
It was the third straight month of slowing price growth, according to the real estate brokerage.
"Many home purchases that closed in December were negotiated in November, when mortgage rates were near the highest level in over two decades. That likely depressed home price growth because buyers were grappling with limited purchasing power," Redfin Senior Economist Sheharyar Bokhari said.
It's also likely that home price growth slowed in December because the housing shortage eased slightly, giving buyers more options to choose from; new listings which rose 0.1% to the highest seasonally adjusted level since September 2022. Still, housing supply remained far below pre-pandemic levels, preventing home prices from dropping as buyers compete for a limited pool of homes.
First American Data & Analytics released its own real house price index Tuesday for November 2023, which found home prices increase 11% annually, sinking affordability to levels not seen in over three decades.
However, between October 2023 and November 2023, the company says real house prices decreased 4.6%, likely due to the high mortgage interest rate.
“Nationally, house prices reached their peak in May of last year before gradually declining to a low point in November 2022. Since then, house prices have resumed an upward trend as housing demand continues to outpace supply,” said First American's Chief Economist Mark Fleming. “Despite affordability challenges driven by elevated mortgage rates, November 2023 data indicates that home prices reached a new peak for the tenth month in a row. Of course, real estate is local, so it’s important to analyze if this trend is consistent across markets.”
Fleming's research found house prices are 53.9% more expensive than in January 2000.
“The re-acceleration in house prices varies by market, but it’s clear that prices in many markets are rising," Fleming added. "In January 2023, prices had declined from their recent peaks in 35 of the top 50 markets we track. By November of 2023, that number dropped to 15 markets."
The general expectation is that in a high rate environment, housing prices would adjust downward, but that didn't happen because of the lack of supply.
“Homebuyers can take solace in the fact that prices are unlikely to balloon again like they did during the pandemic homebuying frenzy, but they probably won’t fall any time soon, either,” Bokhari said. “That’s because supply isn’t growing enough to bring prices down, and mortgage rates are no longer falling enough to drive prices up significantly.”
