U.S. home price gains fall to lowest in more than 6 years

The slowdown in price appreciation has helped make homes more affordable. Mortgage rates have also fallen since January. Cheaper homes and lower rates appear to be reversing last year’s sales slump. Sales of existing homes soared in February, though they remain slightly below where they were a year ago.

Some red-hot markets have cooled off. Home prices in Seattle rose just 4.1% in January from a year ago, compared with a 12.8% gain in January 2018.

And in San Francisco, where the typical home costs well over $1 million, the annual price increase was 1.8% in January, down from a 10.2% increase a year earlier.

Las Vegas reported the sharpest increase in January from a year ago at 10.5%, followed by Phoenix with 7.5% and Minneapolis at 5.1%.

Home prices are now rising at roughly the same pace as incomes, a remarkable shift after six years of increases that far outpaced wages. Average hourly earnings rose 3.4% in February from a year ago.

Mortgage rates jumped roughly a full percentage point last year, peaking at nearly 5% in November. That throttled home sales, which fell 3.1% in 2018.

But rates have since slipped to 4.28% for an average 30-year fixed rate mortgage. Rates will likely fall further as the Federal Reserve has signalled it may not raise short-term rates at all this year.

Lower rates haven’t yet turned around home construction, which is being held back by higher prices for labour and land.

The number of homes under construction fell 8.7% in February, as ground breakings for single-family houses plunged to their lowest level in nearly two years.

The Commerce Department said that builders started construction at a seasonally adjusted annual rate of 1.16 million units last month, down from a 1.27 million pace in January. The setback stems from a 17% drop in the building of single-family houses, which posted the weakest pace since May 2017. Apartment construction increased in February.

Single-family housing starts are running 2.3% below last year’s pace. Lower mortgage rates at the start of 2019 appear to be boosting buyer demand for housing, but builders are contending with rising costs for labour and land that limit how much new construction can take place.

Starts plummeted 29.5% in the Northeast. They declined by 6.8% in the South and 18.9% in the West. Home construction increased 26.8% in the Midwest, but the gains came entirely from apartment complexes.

Housing permits, an indicator of future activity, fell 1.6% to an annual rate of 1.30 million.