US Home Prices Cool. Only Not Really

Rejoice, “bargain” shoppers!

US home prices grew at the slowest annual pace since May of 2021 at summer’s onset.

That’s according to the S&P CoreLogic Case-Shiller National gauge, which logged a 17.96% YoY increase in June, the weakest rate in more than a year (figure below).

The widely followed 20-City index rose 18.6% from last June, less than expected.

The scare quotes around “bargain” (above) convey sarcasm. I assume that was obvious. June’s comparatively moderate pace of gains is not only unsustainable, it’s untenable. Perhaps it’s better to say the rate of price appreciation is unsustainable because it’s untenable. Affordability — as measured by various gauges — deteriorated sharply in 2022, as record high prices collided with surging mortgage rates to make homeownership a far-fetched proposition for (too) many American renters.

As Craig Lazzara, managing director at S&P Dow Jones Indices, noted, June’s growth rates “are at or above the 95%ile of historical experience.”

On the bright side, the MoM pace of price gains moderated materially. The 20-City index rose just 0.44% from June, a third of the prior month’s pace. Separate data out Tuesday showed FHFA prices rose just 0.1% from June to July, far less than the 0.8% consensus expected, and below the lowest estimate from a dozen economists (figure below).

“Housing prices grew quickly through most of the second quarter of 2022, but a deceleration has appeared in the June monthly data,” William Doerner, the supervisory economist in FHFA’s Division of Research and Statistics, said. “The pace of growth has subsided recently.”

The price figures for June rounded out this month’s housing market data, most of which referenced last month’s activity, and almost all of which was lackluster. New home sales were very poor in July, for example, and although pending home sales held up reasonably well under the circumstances, home builder sentiment fell an eighth consecutive month in August, and July saw a fifth decrease in single-family starts and a sixth straight drop in existing home sales.

FHFA’s data showed home prices rose 17.7% during Q2 from the same period a year ago, and 4% from Q1. The pace of annual price increases will almost surely keep falling in the months ahead, as the comps become impossible and sellers are forced to make concessions amid shifting market dynamics. Unfortunately, slower price gains won’t be reflected in shelter inflation, which will likely keep rising as the impact of surging home prices passes through to CPI on a lag.

Moody’s now sees prices falling at least 20% in more than 180 US cities. More broadly, Mark Zandi expects prices to decline as much as 5% in a base case, and 10% in a deeper recession scenario.

Commenting further on Tuesday, S&P’s Lazzara said “It’s important to bear in mind that deceleration and decline are two entirely different things.” Prices, he remarked, “are still rising at a robust clip.”


 

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2 thoughts on “US Home Prices Cool. Only Not Really

  1. I can tell you from hard experience lately in the NY metro area at least, the market has completely changed. Prices won’t plummet in my view, but they are due for some correction. Most importantly the real price of residential real estate will correct significantly over the next 5 years. Think about it. At inflation rates likely to exceed 2% for several more years, you don’t need much of a price decline to have real prices down. Once the rental market in NY rolls over, as night follows day, you will see prices decline. So affordability will increase- just be careful what you wish for……too much of a good thing is no good.

  2. H, buy my property on the mainland. Lots of privacy. Relatively safe from climate change. Quaint and modern. My time on this metaphysical island has come.

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