“There are signs of a gradual thawing in the U.S. housing market, as indicated by slight improvements in new home sales and inventory,” the rating agency said. “Challenges such as high mortgage rates and elevated home prices, which aggravate the affordability issue, continue to moderate the pace of this normalization.”

According to S&P Global, December recorded the highest annual gain in home prices since 2022, with a 5.5% year-over-year increase.

“Looking back at the year, 2023 appears to have exceeded average annual home price gains over the past 35 years,” Brian Luke, S&P Dow Jones Indices’ head of commodities, real and digital assets, said in the report. 

In this environment, lagging wage growth has meant that homebuyers now need to earn around 80% more than they did pre-pandemic, Zillow recently found. 

Further headwinds to housing affordability come from rising mortgage rates, with the median payment rising from $2,055 to $2,134 in December, the Mortgage Bankers Association reported. Rates have continued climbing in February and may prove to be a damper on spring buying.

For 2024, Fitch expects nominal national price growth to slow to 0%-3%, as tight home supply is likely to sustain current high prices. However, S&P noted that existing home sales were up 3.1% month-over-month in January, highlighting a potential boost to supply.