Home Price Increases Are Starting to Slow Down

House price increases cooled in December, the third month in a row of deceleration, on the back of elevated mortgage rates and a slight jump in supply, real estate platform Redfin said on Tuesday.

Prices of homes still went up by 0.4 percent, but this was the smallest increase since June, according to the Redfin's Home Price Index (RHPI). For the year, home prices were up 6.6 percent. The index calculates sales prices based on homes sold and how those prices shifted over a specific time period, with the latest data covering three months through December 2023.

Redfin pointed out that the prices under review were for purchases that kickstarted in November when mortgage rates hovered around two-decade highs of near 8 percent. The 30-year fixed rate mortgage peaked at about 7.8 percent in November, according to data from the Federal Reserve Bank of St. Louis. Rates have been falling since then and as of January 18, sit at 6.60 percent.

The Redfin platform's index rose during COVID but fell again after the Federal Reserve began its hiking cycle in early 2022.

"So, the month-to-month growth rate actually became negative for a really short amount of time. But very quickly, because of the lack of inventory, it came back up again," Chen Zhao, Redfin head of economic research, told Newsweek on Tuesday.

But the high cost of home loans seen during November depressed prices, Redfin said, while short supply of homes improved slightly. New listings jumped to their highest in more than a year, they said.

Redfin experts suggested that prices are stabilizing from the unpredictable fluctuations seen during the pandemic.

"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," Sheharyar Bokhari, Redfin senior economist, said earlier in a report. "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."

Experts have warned that without a substantial increase in supply of new homes, prices will continue to stay high as buyers compete for limited options available in the market. Analysts have said that there is a dearth of 4 million homes to satisfy demand.

A poll for Newsweek conducted on January 18 revealed that Americans are concerned about expensive prices of homes. Two-thirds told pollsters that the median sale price of nearly $388,000, according to the National Association of Realtors (NAR), was beyond what a middle-class family in America could afford.

Zhao told Newsweek that with rates falling, it was possible that prices might shoot up again. But accompanying a fall of rates has been an improvement of supply, which could lead to price declines.

"If supply continues to tick up, and especially if the growth of supply increases, so it kind of like accelerates a little bit, then it's possible that we're able to kind of either maintain this lower level of price growth or price growth might even fall again," she said. "It really just depends on how much supply continues to increase."

The Redfin analysis found that Austin, Texas, experienced the sharpest price decline in December from the previous month, followed by Oakland and Sacramento in California, Florida's Miami and Tennessee's Nashville.

Chicago, Illinois, saw prices jump by 2.6 percent last month from November, while San Jose, California, Pittsburgh in Pennsylvania, Virginia Beach, Virginia, and Charlotte in North Carolina also saw increases.

This year, activity in the housing sector may improve with falling rates and used home sellers finally deciding to come out of the sidelines and enter the market adding to the amount of homes available for sale to hungry buyers, Zhao said.

"This year, the outlook for rates, probably that rates are gonna come down. They're not gonna come down a ton, but they will. They will continue to slowly ease, I think, and that might just be enough of a psychological effect for homeowners to say, 'all right, this is enough, we're ready to sell," she told Newsweek.

Update: 1/23/24, 3:00 p.m. ET: This article has been updated with comment Redfin's Zhao.