The growth of home prices slowed considerably to end last year due to higher rates and more available homes for sale, First American reported this week.
Homebuyers can expect “very moderate price appreciation” in 2025 if the same trends continue, the company’s chief economist Mark Fleming said.
Home prices rose 3.9% nationally in December compared to a year earlier after starting the year with annual growth at 7%, the financial services company reported.
“Higher mortgage rates in the latter half of the year, combined with higher inventory levels, triggered the cooling trend,” Fleming said.
Price growth varied considerably within price tiers and by city, however. Cities with the highest year-over-year price growth in December included Anaheim, California (6.1%), Cambridge, Massachusetts (6%) and Pittsburgh (5.8%).
Meanwhile, prices declined in Tampa, Florida (-4.6%), Oakland, California (-0.8%), Austin, Texas (-0.2% and Los Angeles (-0.1%).
Prices for starter homes tended to have higher growth last year than mid-tier and luxury homes. For example, in Pittsburgh, the price of starter homes rose 9.5% year over year in December, whereas prices for mid-tier and luxury homes increased 2.7% and 4%, respectively.
Looking ahead, Fleming said markets that see growth in the number of homes for sale may see prices decline in 2025, whereas cities with limited supply could see home prices accelerate.
“The structural housing shortage nationally will keep a floor on how low prices can go, but a ‘higher-for-longer’ rate environment and inventory growth could cause further price moderation,” Fleming said.
The report also noted that home prices in December were nearly 55% higher on a national basis compared to February 2020 prior to the COVID-19 pandemic.
