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Lack of buying power in the housing market is resulting in a cool down of home prices as sellers adjust their expectations and moderate their asking prices. Home prices increased 4.7% annually in December vs 5.1% in November according to the S&P CoreLogic Case-Shiller US National Home Price Index.

Key Takeaways

• Home prices grew 4.7% annually in December vs 5.1% in November, the lowest rate of growth since August 2015.
• Despite a decline in interest rates in Q4 2018, the rate of constructing and selling homes has declined along with the rate of home price growth.
• At 4.7%, home prices continue to outpace wage gains of 3.5% to 4% plus 2% inflation.

The 10-city composite annual increase rose 3.8%, down 4.2% the month prior. The 20-city composite increase rose by 4.2% annually, a decline of -4.6%. Mortgage rates have dropped with the average rate of interest on a 30-year fixed mortgage dropping from around 5% to November to just shy of 4.5% in recent weeks, but this has seemingly not been enough to stimulate the struggling housing market with a broad slowdown in sales, construction, and price growth as well as a general lack of affordability for many would-be buyers with affordability the lowest now in approximately ten years.

The biggest annual gains were reported in Las Vegas, Phoenix, and Atlanta. Home prices in Las Vegas jumped by 11.4% while Phoenix prices rose 8% and prices in Atlanta rose 5.9%. Only three out of 20 cities saw an annualized increase in prices when comparing December 2018 to November 2018. Home builder sentiment has crept upward due to lower interest rates but builders are still under pressure from the ongoing trade war which is raising costs of materials like steel, meaning construction is still showing weak activity.

According to the National Association of Realtors, sales of existing homes were 8.5% lower this January compared with January 2018 and homes are spending more time on the market before selling while sellers are currently more likely to cut prices than in the past.

Expert Outlook

“Even at the reduced pace of 4.7 percent per year, home prices continue to outpace wage gains of 3.5 percent to 4 percent and inflation of about 2 percent,” said David M. Blitzer, managing director and chairman of the Index Committee at S&P Dow Jones Indices. “A decline in interest rates in the fourth quarter was not enough to offset the impact of rising prices on home sales.”

 “Slower price appreciation coupled with lower mortgage rates in 2019 should help home buyers who haven’t been priced out of the market,” said Danielle Hale, chief economist at Realtor.com “While 2018 started with a real estate frenzy and ended with a fizzle, we could see 2019′s slow beginning start to pick up later in the year.”

Market Reaction

Gold continues to post losses today and is currently trading down 0.26% at $1,325.79/oz at the low end of the range which has seen a high of $1,330.10/oz and a low of $1,323.77/oz. The recent housing market data has done little to boost the value of gold, although it’s possible that the market will be stimulated from an upcoming statement from the US Federal Reserve due at 9:45 a.m. EST.