U.S. Home Prices Are Rising at the Slowest Pace in Nearly a Year and a Half

Rhea-AI Summary

U.S. home prices rose just 0.3% month-over-month in May, the smallest increase since January 2023, according to Redfin's new report. Annual growth was 7.2%, showing signs of plateauing. This slowing growth is attributed to a slight uptick in new listings, giving buyers more options amidst elevated mortgage rates. The Redfin Home Price Index (RHPI) uses repeat-sales pricing to measure price changes, publishing data more than a month earlier than the S&P CoreLogic Case-Shiller indices. New listings increased by 0.3% monthly and 8.8% year-over-year, but remain 20% below pre-pandemic levels. Redfin's Chen Zhao anticipates that cooling inflation might lead to lower mortgage rates in late summer or early fall, potentially bringing back buyers and sellers to the market.

Positive

• U.S. home prices rose 0.3% month-over-month in May.
• Annual home price growth was 7.2%, according to the Redfin Home Price Index.
• New listings increased by 0.3% month-over-month.
• New listings climbed 8.8% year-over-year.

Negative

• The monthly price increase in May was the smallest since January 2023.
• Annual home price growth shows signs of plateauing.
• New listings are still roughly 20% below pre-pandemic levels.
• High mortgage rates continue to keep buyers at bay.

Financial Analyst

The recent data from Redfin indicates that U.S. home price growth is slowing, with only a 0.3% month-over-month increase in May, the smallest rise since January 2023. Although prices are up 7.2% year-over-year, the annual growth is showing signs of plateauing. For retail investors, this signals a shift in the housing market dynamics. The small uptick in new listings, combined with elevated mortgage rates, is creating a delicate balance between supply and demand. Higher mortgage rates typically deter buyers, leading to softer price growth.

While it's true that home prices are at record highs, the pace of increase is slowing down. This trend could suggest that the market is stabilizing, which might attract institutional investors looking for steady, long-term returns. However, for individual investors, the prospect of minimal short-term gains might be less appealing. The potential for a decline in mortgage rates later in the year could further influence market dynamics, making it essential to monitor interest rate movements closely.

Investors should also consider the broader economic context. Inflation cooling could mean lower borrowing costs, which might stimulate both buying and selling activities. However, the impact on home prices will largely depend on whether sellers or buyers re-enter the market more aggressively.

Real Estate Market Analyst

The report highlights a slight increase in new listings by 0.3% month-over-month in May and a 8.8% increase from a year earlier, although still 20% below pre-pandemic levels. The increase in listings has eased some pricing pressure as buyers have more choices, which is a important aspect for retail investors in real estate stocks. This gradual easing of the severe housing shortage might indicate a more balanced market, reducing the risk of price volatility.

However, it's essential to understand that the market is still adjusting to post-pandemic realities. The 'mortgage rate lock-in effect' where sellers hesitate to move due to ultra-low mortgage rates is slowly wearing off, which could lead to more listings in the future. This dynamic could either stabilize or further cool down the market, depending on how quickly buyers return relative to sellers. Investors need to watch these trends closely as significant shifts could present both risks and opportunities in real estate investments.

Additionally, the Redfin Home Price Index (RHPI) provides a more timely indicator compared to the S&P CoreLogic Case-Shiller indices, giving investors an earlier glimpse into market trends. Understanding these nuances can help investors make more informed decisions about their real estate portfolios.

Redfin reports price growth is slowing thanks to a small uptick in new listings as elevated mortgage rates keep buyers at bay

SEATTLE--(BUSINESS WIRE)-- (NASDAQ: RDFN) — U.S. home prices rose 0.3% month over month in May—the smallest increase on a seasonally adjusted basis since January 2023, per a new report from Redfin (redfin.com), the technology-powered real estate brokerage. Prices climbed 7.2% from a year earlier, but annual growth showed signs of plateauing.

This is according to the Redfin Home Price Index (RHPI), which uses the repeat-sales pricing method to calculate seasonally adjusted changes in prices of single-family homes. The RHPI measures sale prices of homes that sold during a given period and how those prices have changed since the last time those same homes sold. It’s similar to the S&P CoreLogic Case-Shiller Home Price Indices but publishes more than one month earlier. May data covers the three months ending May 31, 2024.

While home prices remain at record highs, the pace at which they’re growing has slowed because even though we’re still in a severe housing shortage, it’s not quite as severe as it was last year. New listings have been inching upward, which has taken a little pressure off of sale prices because buyers have more options to choose from. Listings should continue to tick up slowly as the mortgage rate lock-in effect continues to wear off; eventually, the people who don’t want to move because they have an ultra-low mortgage rate have to move.

“We learned last week that inflation continued to cool in May, which means mortgage rates could decline in late summer or early fall,” said Redfin Economics Research Lead Chen Zhao. “A drop in mortgage rates would bring both buyers and sellers back to the market, which could either accelerate price growth or pull it back depending on who comes back with more force. If sellers come back faster, prices would likely cool, but if buyers come back faster, prices would likely ramp up.”

New listings rose 0.3% month over month in May on a seasonally adjusted basis and climbed 8.8% from a year earlier, though they were still roughly 20% below pre-pandemic levels.

Home price growth started to ease at around the same time that new listings started to tick up last year; new listings saw their first notable increase in August 2023, and monthly price growth began cooling during the three months ending Oct. 31, 2023.

To view the full report, including charts and metro-level data, please visit:

https://www.redfin.com/news/home-prices-smallest-increase-over-a-year

About Redfin

Redfin (www.redfin.com) is a technology-powered real estate company. We help people find a place to live with brokerage, rentals, lending, title insurance, and renovations services. We run the country's #1 real estate brokerage site. Our customers can save thousands in fees while working with a top agent. Our home-buying customers see homes first with on-demand tours, and our lending and title services help them close quickly. Customers selling a home can have our renovations crew fix it up to sell for top dollar. Our rentals business empowers millions nationwide to find apartments and houses for rent. Since launching in 2006, we've saved customers more than $1.6 billion in commissions. We serve more than 100 markets across the U.S. and Canada and employ over 4,000 people.

Redfin’s subsidiaries and affiliated brands include: Bay Equity Home Loans®, Rent.™, Apartment Guide®, Title Forward® and WalkScore®.

For more information or to contact a local Redfin real estate agent, visit www.redfin.com. To learn about housing market trends and download data, visit the Redfin Data Center. To be added to Redfin's press release distribution list, email press@redfin.com. To view Redfin's press center, click here.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240618338682/en/

Contact Redfin

Redfin Journalist Services:

Ally Braun, 206-588-6863

press@redfin.com

Source: Redfin

FAQ

How much did U.S. home prices increase in May 2024?

U.S. home prices rose by 0.3% month-over-month in May 2024 according to Redfin.

What was the annual growth rate of U.S. home prices in May 2024?

The annual growth rate of U.S. home prices was 7.2% in May 2024.

Why is the growth of U.S. home prices slowing?

The growth of U.S. home prices is slowing due to a slight increase in new listings and high mortgage rates keeping buyers at bay.

What does the Redfin Home Price Index measure?

The Redfin Home Price Index measures seasonally adjusted changes in prices of single-family homes using the repeat-sales pricing method.

What was the monthly increase in new listings in May 2024?

New listings increased by 0.3% month-over-month in May 2024.

How do current new listings compare to pre-pandemic levels?

Current new listings are roughly 20% below pre-pandemic levels.

What impact could cooling inflation have on mortgage rates?

Cooling inflation could lead to lower mortgage rates in late summer or early fall.