Blistering Pace Of US Home Price Gains Seen Out Of Gas

The rate of US home price appreciation is slowing, data out Tuesday showed.

Of course, “slow” is still an extremely relative term in this context. The S&P CoreLogic Case-Shiller 20-City index rose 20.5% YoY in May, slightly below estimates, but still among the swiftest rates on record.

The national gauge logged a 19.75% increase from the same period a year ago. That too marked a modest deceleration (figure below).

The monthly gains were noticeably cooler. The 20-City gauge rose 1.32% from April, and the national index 1.04%. The prior months’ sequential increases were 1.71% and 1.75%, respectively.

Craig Lazzara, managing director at S&P Dow Jones Indices, suggested the market is cooling in real time. “Mortgage financing has become more expensive as the [Fed] ratchets up interest rates, a process that was ongoing as our May data were gathered,” he said Tuesday.

Although May’s growth rates were described as “extremely robust,” and despite all three composites remaining at or above the 98th%ile historically, Lazzara cited a “challenging macroeconomic environment” in suggesting that “extraordinary home price growth” may not last “for much longer.” The dated nature of the figures means it’s possible that price gains are already less than “extraordinary,” or at least when measured against the post-pandemic bonanza.

Meanwhile, FHFA data, released concurrently, painted a broadly similar picture. At 18.3%, the YoY pace of price gains in May was still sky-high by any historical standard (figure below), but nevertheless counted as the slowest annual rate since December. It was the third consecutive month during which the 12-month rate declined, although that’s barely perceptible on the longer-term chart.

On a monthly basis, May’s 1.4% gain was cooler than the 1.5% increase economists expected, but there again, “cool” is a relative term. As the blue shaded area in the figure (above) shows, these are very elevated rates. April’s MoM print was revised lower.

“House prices continued to rise in May, but at a slower pace,” Will Doerne, Supervisory Economist in FHFA’s Division of Research and Statistics, remarked. “Since peaking in February, price appreciation has moderated slightly [but] continues to remain above historical levels, supported by the low inventory of properties for sale.”

It’s the same story. It’s too late for the Fed to counter the rise in shelter inflation. It operates on a lag vis-à-vis home price appreciation. The best the FOMC can hope for is evidence that the pace of price gains is slowing. Tuesday’s data suggested that it is. Slowly.