Case-Schiller index points to continued headwinds for housing prices

March 28 (UPI) -- Higher lending rates and prospects for continued U.S. economic weakness could keep a lid on housing prices for several months, analysis from S&P Dow Jones Indices found Tuesday.

The S&P CoreLogic Case-Schiller U.S. National Home Price NSA Index showed a gain of 3.5% in January, a decline from the 5.6% expansion from December. A 10-city composite, meanwhile, showed an increase of 2.5%, compared with 4.4% the previous month.

The National Association of Realtors in a separate report put the average price for an existing home at around $363,000, a 0.2% decline relative to year-ago levels. That snaps a streak that began more than a decade ago.

Craig J. Lazzara, the managing director at S&P Dow Jones Indices, said concerns about a looming financial downturn suggests prices won't recover much.

"Mortgage financing and the prospect of economic weakness are therefore likely to remain a headwind for housing prices for at least the next several months," he said.

Weakness would come as a result of efforts to control consumer-level inflation. The U.S. Federal Reserve last week hiked its lending rate by 25 percentage points as result of inflation running at about three times its target rate of 2% annually. That came despite lingering concerns the collapse of Silicon Valley Bank in California was the start of a broader crisis in the global finance sector.

Higher rates from the Fed translate to a higher cost of borrowing for consumers. A 30-year, fixed-rate mortgage has an average 6.5% interest rate, up from 4.16% at this time last year.

While prices are on the decline, higher lending rates may be keeping some would-be buyers on the sidelines. Data from the NAR show that first-time buyers were responsible for 27% of existing-home sales last month, down from 31% in January and 29% in February 2022.

S&P found there was a silver lining in the U.S. South, where prices are showing resilience against broader economic trends. Nevertheless, Lazzara said that "January's market weakness was broadly based."