Pace Of US Home Price Gains Downshifts Most Ever

Home prices posted a smaller-than-expected annual gain in July, according to one closely watched gauge, and logged a surprise monthly decline on another, underscoring the impact of higher rates and pervasive affordability concerns on the previously frothy US housing market.

The S&P CoreLogic Case-Shiller 20-City Index rose “just” 16.1% from a year ago, data out Tuesday showed. Consensus expected a 17% 12-month increase.

The national gauge rose 15.77% from last year, the slowest pace of annual price appreciation since April of 2021 (figure below).

“Although US housing prices remain substantially above their year-ago levels, July’s report reflects a forceful deceleration,” Craig Lazzara, managing director at S&P Dow Jones Indices, said.

Lazzara’s “forceful deceleration” was a reference to the change in the annual pace of appreciation for the national gauge. Specifically, the 2.3% difference between June’s 12-month rate and July’s, was the largest deceleration in the history of the index (figure below).

“We saw similar patterns in our 10-City Composite (up 14.9% in July versus 17.4% in June) and our 20-City Composite (up 16.1% in July versus 18.7% in June),” Lazzara went on to say, noting that on a monthly basis, all three gauges fell.

Speaking of monthly decreases, the FHFA Home Price Index dropped 0.6% in July, separate data out Tuesday showed. That was a big surprise. Consensus expected a flat reading. The range of estimates, from a dozen economists, was -0.8% to 0.7%.

It was the first monthly drop since May of 2020 (figure below).

“This decline was widespread as eight of the nine census divisions saw a decrease,” Will Doerner, Supervisory Economist in the FHFA’s Division of Research and Statistics, remarked.

Although the annual rate, at 13.9%, was still very elevated, it too moderated across all divisions.

This is good news for the Fed. Wait. Let me try that again. This is good news for the Fed later. The moderation in housing will eventually be reflected in shelter inflation, on a maddening delay (figure below).

The lag is such that by the time it shows up, the Fed will probably be on the verge of easing again. They may even be a rate cut or two in, depending on how pessimistic you are about the US economy.

There’s some concern that would-be sellers are now effectively “locked in,” unwilling to list given a variety of factors, including waning leverage in a market where buyers are increasingly scarce and the daunting prospect of onerous financing costs on any new property they might purchase assuming they can sell. That may mean inventories stay relatively tight.

Mortgage rates surged again last week, reaching 6.29%, the highest since October of 2008. Since retreating below 5% during the week of August 4, rates are up 130bps.


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