US Case-Shiller/FHFA House Prices (Jan. 2026)

House prices already losing momentum prior to Iran war

The softer 0.2% m/m rise in house prices in January supports our view that the housing market was already losing momentum before the recent jump in mortgage rates linked to the Iran war, only partly explained by poor weather. We expect house prices to rise by an unimpressive 3% this year in our baseline scenario but, if the conflict drags on and pushes energy prices much higher, the resulting upward pressure on mortgage rates means prices could be flat or even edge down.  

The seasonally adjusted Case-Shiller 20-City House Price Index rose modestly by 0.2% m/m in January following back-to-back 0.5% gains in November and December. This caused the annual growth rate to drop to 1.2%, its lowest level in nearly three years, though the three-month annualised rate remained elevated at 4.9%, illustrating the recent positive momentum. The competing FHFA measure, based on qualified mortgages securitised by the GSEs, was slightly more downbeat, showing a muted 0.1% price gain, though December’s 0.1% increase was revised up slightly to 0.3%. House price inflation on that measure stands at 1.6%.

The fading in house price momentum in January on both the FHFA and Case Shiller indices reflects that these measures, which are based on home closings rather than deal signings, are beginning to capture weaker conditions in December, when indicators of housing demand such as pending home sales fell sharply. The recent rise in mortgage rates to around 6.5%, linked to the Iran-war-driven selloff in Treasuries, will weigh further on demand in the coming months, although it should also constrain new supply, so the drag on prices may be limited. In our baseline forecast for how the war and energy prices play out from here, we have only slightly lowered our forecast for house price growth to 3% this year, from 4% previously, and expect a similar increase in 2027.