U.S. Home Prices Rise 3.9% in December 2024: Case-Shiller Index

The S&P CoreLogic Case-Shiller Home Price Indices, released on February 26, 2025, showed that U.S. home prices continued their upward trajectory in December 2024, with the national index climbing 3.9% annually. The 10- and 20-city composites climbed 5.1% and 4.5%, respectively, indicating regional variations in price growth. This article explores the factors driving the continued rise in home prices, the impact on affordability, and the future trajectory of the housing market.

Factors Driving Home Price Appreciation

1. Supply and demand dynamics: The housing market remains characterized by a supply-demand imbalance, with strong demand in regions like the Midwest and Northeast, and relatively low inventory levels. This dynamic puts upward pressure on home prices.
2. Affordability constraints: Despite some easing in listing prices, higher-priced homes continue to sell, driving sales prices higher. The divide between low-to-mid and high-to-luxury price ranges persists, with buyers in the former largely keeping to the sidelines, while activity in the latter carries on, skewing sale prices higher.
3. Mortgage rates: Although mortgage rates have been elevated since late December 2024, they have not yet significantly slowed the pace of home price appreciation. However, if mortgage rates remain high or continue to rise, affordability constraints may become more severe, potentially impacting the housing market's future trajectory.

Impact on Affordability

Rising home prices have a significant impact on affordability, particularly for first-time homebuyers. The expected monthly mortgage payment for a first-time homebuyer is about $2,200, representing roughly 30% of the income of the median U.S. household. This is one of the highest levels in the past 25 years. High mortgage rates, currently around 7%, exacerbate the affordability issue, making it difficult for first-time buyers to enter the market.



Future Trajectory of the Housing Market

The sustainability of the current trend in home prices depends on various factors, including mortgage rates, inventory levels, economic conditions, and policy interventions. If mortgage rates remain elevated or continue to rise, affordability constraints may become more severe, potentially slowing down the pace of home price appreciation or even causing prices to decline in some markets. Additionally, changes in inventory levels, economic conditions, and policy interventions could influence the long-term sustainability of the current trend in home prices.

In conclusion, the U.S. housing market continues to experience home price appreciation, as indicated by the Case-Shiller Index. However, the impact of rising home prices on affordability, particularly for first-time homebuyers, is likely to continue to affect the housing market's future trajectory. As home prices continue to rise, it will become increasingly difficult for first-time homebuyers to enter the market, which could lead to a decrease in home sales activity and overall economic growth. The wealth effect of rising home prices may also be offset by the negative impact of rising home prices on affordability, leading to a decrease in consumer spending and economic growth.