California City Breaks Troublesome Housing Market Record

San Diego saw a nearly 9 percent house price increase on a yearly basis in December, part of broad gains in the month, according to the S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, as mortgage rates declined from their two-decade highs in the fall.

Seventeen of the 20 major metro areas under the index showed price jumps. Los Angeles and Detroit, for example, also reported significant value gains at 8.3 percent on a yearly basis. For 20 cities measured by the index, prices in December jumped by more than 6 percent, higher than the previous month's 5.4 percent. For the nine U.S. census divisions, house prices increased by 5.5 percent, up from 5 percent in November. The national index recorded a decrease of 0.4 percent in December, the data showed.

House prices have overcome significant headwinds in 2023, said Brian D. Luke, Head of Commodities, Real & Digital Assets, at S&P Dow Jones Indices, with elevated mortgage rates keeping buyers and sellers away from the market.

"However, on a seasonally adjusted basis, the S&P Case-Shiller Home Price Indices continued its streak of seven consecutive record highs in 2023," Luke said in a statement. "Ten of 20 markets beat prior records, with San Diego registering an 8.9 [percent] gain and Las Vegas the fastest rising market in December."

Twenty markets showed annual price increases for the first time in 2023, with four registering a more than 8 percent jump.

"The term 'a rising tide lifts all boats' seems appropriate given broad-based performance in the U.S. housing sector," Luke said.

Mortgage rates soared to 8 percent in October in what was the highest level since the turn of the century. This was partly due to the Federal Reserve hiking its funds rate aggressively to battle record-high inflation. The central bank's interest rates now sit at a two-decade high of 5.25 to 5.5 percent, a policy reality that has pushed up borrowing costs across the economy including for home loans.

"House prices rose solidly in 2023 after declining from mid-2022 to the beginning of 2023 amid surging interest rates, high inflation, and a bear market in stocks," Bill Adams, chief economist for Comerica Bank, said in a note shared with Newsweek.

The 5.5 percent price gains seen in 2023 in the index were above the national trend of about 5 percent, even though it was lower than in previous years, according to Luke.

"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 said.

The rise in the cost of mortgages could have been a factor in prices in the fourth quarter of 2023, he added.

"In the short term, meanwhile, we should be able to measure the impact of higher mortgage rates on home prices. Increased financing costs appeared to precipitate home price declines in the fourth quarter, as 15 markets saw lower values compared to September," Luke said.

But the solid price gains seen last year helped Americans feel more confident about the economy, Comerica's Adam said.

"House prices are the biggest component of household wealth for middle-income Americans. Their stabilization and then increase in 2023 helped Americans feel better about their household financial situation and boosted consumer confidence," he said.

He added: "Comerica forecasts for house prices to rise 2.3% in 2024 by the Case-Shiller index, rising a bit slower than average hourly earnings, as more newly-built housing supply comes to market and more homeowners who have been waiting to move or downsize start to take the plunge."

Update 2/27/24, 2:10 p.m. ET: This story was updated with comments from Bill Adams and a chart.