After six years of strong house price growth, the U.S. housing market is now cooling. House price rises are decelerating gradually. Demand and construction activity are falling, amidst rising interest rates. Homebuilder sentiment is also at its lowest in more than three years.

The S&P/Case-Shiller seasonally-adjusted national home price index rose by 5.16% during the year to November 2018 (2.92% inflation-adjusted), a deceleration from the previous year’s 6.09% growth and the lowest pace in more than two years. This was supported by Federal Housing Finance Agency’s seasonally-adjusted purchase-only U.S. house price index, which rose by 5.76% year-on-year in November 2018 (3.5% inflation-adjusted), lower than the y-o-y rises of 6.72% in November 2017 and 6.37% in November 2016.

Despite this, all 20 major U.S. cities continued to experience house price hikes, according to Standard and Poor’s, with Las Vegas posting the highest increase of 12.07% during the year to November 2018, followed by Phoenix(8.1%), Seattle (6.33%), Denver (6.22%), Atlanta (6.2%), Minneapolis(5.77%), Detroit (5.75%), Tampa (5.68%), San Francisco (5.6%), Boston(5.59%), and Charlotte (5.45%). Modest house price rises were registered in Miami (4.96%), Cleveland (4.63%), Los Angeles (4.44%), Portland(4.38%), Dallas (3.96%), New York (3.5%), San Diego (3.35%), Chicago(3.11%) and Washington (2.72%).

The Mountain region had the highest house price increases of 7.44% y-o-y in November 2018, followed by the East South Central (7.32%), South Atlantic (6.68%), East North Central (5.73%), West North Central (5.59%), and New England (5.29%), according to the FHFA.

The average sales price of new homes sold in the U.S. rose by just 1.8% y-o-y in November 2018, to US$362,400, according to the U.S. Census Bureau. In fact, the median sales price of new homes sold fell by 11.9% to US$302,400 over the same period.

For existing homes, the median price was up by a modest 2.9% to US$253,600 in December 2018 from a year earlier, according to the National Association of Realtors (NAR). December’s price increase marks the 82nd consecutive month of year-over-year gains.

Demand is now falling

Sales of new single-family houses were down 7.7% to a seasonally-adjusted annual rate of 657,000 units in November 2018 from the previous year, according to the US Census Bureau. Likewise, existing home sales fell by 10.3% y-o-y to 4.99 million units in 2018, according to NAR.

Construction activity is weaker. In November 2018, new housing starts fell by 3.6% y-o-y to a seasonally-adjusted annual rate of 1,256,000 units, while completions were down 3.9% to 1,099,000 units, according to the U.S. Census Bureau. Building permits authorized for new housing units rose by a meagre 0.4% y-o-y to 1,328,000 units in November 2018.

U.S. homebuilder sentiment declined to just 54 in December 2018, well below the previous year’s level of 74 and actually the lowest reading since May 2015, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). A reading of 50 is the midpoint between positive and negative sentiment.

“This housing slowdown is an early indicator of economic softening, and it is important that builders manage supply-side costs to keep home prices competitive for buyers at different price points,” said NAHB Chief Economist Robert Dietz.

The U.S. housing market is expected to continue to slow in the coming years. NAR projects only about 1% increase in existing home sales this year to 5.4 million units. In addition, the national median existing-home price is forecast to rise by a modest 3.1% to around US$266,800.

“The forecast for home sales will be very boring – meaning stable,” said NAR’s chief economist Lawrence Yun. “Home price appreciation will slow down – the days of easy price gains are coming to an end – but prices will continue to rise.”