Pace Of US Home Price Gains Falls Most Ever. Again
The Fed's efforts to pop a housing bubble they helped facilitate are working.
The pace of US home price growth decelerated "forcefully" for a second consecutive month in August, key price data released on Tuesday showed.
The Case-Shiller 20-City Index rose 13.1% YoY that month, cooler than the 14% pace consensus expected. The 12.99% gain on the national gauge was the slowest since February of 2021, and represented a marked deceleration from July's pace. In fact, the month-to-month deceleration
The real shoe to drop will be inventories. Low rates have slowed that down as sellers are reluctant to walk away from low rate mortgages. Once you see inventories build with slowing sales you get a price drop to accelerate. It should not be as bad as 08-09 because underwriting for lending is better this go around.
I hope you are correct- two of my 20-something children would like to purchase a home- but are currently “on hold”.
However, both live in large Southern California cities, so I am not so sure about any significant price declines- hope I am wrong.
Real prices will drop, nominal some
House prices are not the only indicator of inflation in the residential R/E market. Love to see how rents are trending and what’s happening to commercial property prices.
Lucky One – Two weeks ago I spoke at length with a classmate at a B-School reunion. He is a principal at a large private commercial property group. I asked him about pricing in the markets they operate in. He answered that with funding costs up so much, would-be buyers have dropped their bids pretty much across the board.
Sellers, however, have been stubbornly sticking to offers that may have made sense when interest rates were much lower but not anymore. I opined that it sounded like the residential market where sellers keep thinking/hoping that the house they are selling should still be worth the same as the home down the street that sold for a smart price two years ago when mortgages were more affordable.
He agreed and further commented that he is only just starting to see sellers lowering prices to reflect the new reality.
I asked if the seemingly cost-insensitive Private REIT kind of buyers were still so aggressive. He answered they are not. In fact, he had seen many simply drop out of the market.
All anecdotal but perhaps a good tell.
Home prices and housing costs are way too high. As others have noted, we need price drops (in rents, too, not just a deceleration in price growth. Once it gets to its terminal rate, I’d love to see the Fed really focus on shrinking its MBS holdings.
Well, MBS is spread product, so it’s not as simple as — you know — “well, we’ll just start actively selling these and everything will be fine.” There would be knock-on effects. But ultimately, this situation is a disaster. As I wrote the other day, Fed easing made homes unaffordable on the price side and now Fed tightening has made them unaffordable on the financing side. And the price declines associated with the latter dynamic are going to hurt people who bought at the peaks with small down payments.
“and the price declines associated with the latter dynamic are going to hurt people who bought at the peaks with small down payments….”
But it’s not the Fed’s job to protect every investor, or investor class, who decides to put their hard-earned money into an investment — especially a home purchase at the top of what everyone could see was an unstainable bubble. It’s capitalism — caveat emptor.
Rightly or wrongly, that kind of Calvinist rhetoric is a big reason that populists are gaining support in the US and elsewhere.
Buying at peak price with minimal equity, that’s dangerous no matter what. No way to protect those folks if they have to sell now. Arguably no need to protect them either. Their mortgages are non-recourse, that’s the protection. If they don’t have to sell, they at least locked in generationally low rates.
Everyone else, either their big RE gains will become somewhat less big gains, or they wait until rates and prices adjust to buy.
The glitter and lipstick are different but the pig is more bloated this time than in 208. When demand collapses then month’s supply will increase. There will be defaults and walk-aways and evictions. Investors who purchased with ARM’s will bail. Rentals are already returning in the 4% range. Bonds look a lot better and a lot less risky.