Home Prices Rose in January. Why a Slowdown Is Coming.

The housing market has been a rollercoaster ride in recent years, with home prices soaring to unprecedented heights. However, the latest data from the S&P CoreLogic Case-Shiller National Home Price Index suggests that the market may be cooling down. In January 2025, home prices rose by 4.1% year over year, but the pace of growth has slowed significantly compared to previous months. This trend is a clear indication that the housing market is entering a new phase, one that could see a slowdown in the coming months.

The primary factors contributing to this slowdown are rising mortgage rates and high home prices, which have pushed affordability to multi-decade lows in many regions. According to Nicholas Godec, head of fixed income tradables and commodities at S&P Dow Jones Indices, "Rising mortgage rates throughout the year elevated monthly payment burdens, which, combined with already high home prices, pushed affordability to multi-decade lows in many regions. This likely contributed to subdued activity in the back half of the year, with both buyers and sellers exercising caution."



The impact of rising mortgage rates and high home prices on buyer affordability cannot be overstated. The median monthly mortgage payment in January 2025 was $2,686, which is 7.6% higher than a year earlier. This increase is a direct result of the combination of elevated mortgage rates and higher home prices, making housing affordability a significant problem. Rob Haworth, senior investment strategy director with U.S. Bank Asset Management, notes that "the combination of elevated mortgage rates and higher home prices means that housing affordability remains a meaningful problem."

Despite these challenges, there are signs of hope for the housing market. Inventory levels are rising in much of the country, and home prices have fallen slightly from record highs. This could provide some relief for prospective homebuyers, who have been struggling to find affordable options in many regions. However, the market remains range-bound in the present environment, with uncertainty surrounding new Trump administration policies and the potential impact on the labor market, interest rates, and building supplies.

In conclusion, while the housing market may be slowing down, it is not all doom and gloom. Prospective homebuyers can employ several strategies to navigate these challenges, such as improving their credit score, saving for a larger down payment, and considering adjustable-rate mortgages. Additionally, the rising inventory levels and slight decline in home prices could provide some relief for buyers in the coming months. However, the market remains uncertain, and it is important for buyers to stay informed and adapt to the changing landscape.