U.S. home prices are growing at their slowest pace in nearly a year and a half, according to Redfin‘s home price index that was published on Tuesday.
Home prices rose 0.26% month over month in May, down from a monthly increase of 0.44% in April. Last month’s reading marked the smallest monthly increase on a seasonally adjusted basis since January 2023.
National home prices were up 7.16% year over year in May, according to Redfin, down from 7.25% growth in April.
At a more granular level, 31 of the nation’s 50 largest metros reported monthly price increases in May, with Detroit posting the largest monthly increase at 3.53%. Chicago, meanwhile, posted the largest monthly decline at 2.01%.
On a year-over-year basis, only Austin (-0.51%) posted an annualized decline in prices. Of the other 49 metro areas, Newark, New Jersey, posted the largest yearly increase at 15.69%, followed by Nassau County, New York (+15.65%), and Warren, Michigan (+14.79%).
Redfin attributes the slower price growth to a housing shortage that is less severe than a year ago. A slight uptick in new listings has taken some of the pressure off sales prices as buyers have more options to choose from.
Redfin data shows that new listings new listings were up 0.3% month over month and 8.8% year over year in May. Despite these increases, new listings are still roughly 20% below pre-pandemic levels.
As further proof that an uptick in new listings is responsible for slower home price growth, Redfin noted that home price growth began to cool during the three-month period ending in October 2023, just after the number of new listings saw its first notable increase in August 2023.
Looking ahead, Redfin expects new listings to continue to rise as the mortgage rate-lock effect on home sellers wears off, which could occur if mortgage rates continue to fall.
“We learned last week that inflation continued to cool in May, which means mortgage rates could decline in late summer or early fall,” Chen Zhao, Redfin’s economics research lead, said in a statement.
“A drop in mortgage rates would bring both buyers and sellers back to the market, which could either accelerate price growth or pull it back depending on who comes back with more force. If sellers come back faster, prices would likely cool, but if buyers come back faster, prices would likely ramp up.”
