US home prices rose for six consecutive months midway through summer, data released on Tuesday showed.
The S&P CoreLogic Case-Shiller 20-city index posted a 0.9% MoM gain in July, running the streak to half a dozen, while FHFA prices rose 0.8%, double the expected monthly gain.
Tuesday’s figures underscored the extent to which a still acute supply-demand mismatch is supporting prices despite what, for many young buyers, look like onerous mortgage rates.
Notably, the Case-Shiller 20-city gauge also rose on a YoY basis. It was the first increase since February.
The national gauge likewise rose from the same month a year ago.
The read-through is simple. Home prices peaked last summer in the US. If they’re rising again on a YoY basis, that means prices are now in the process of registering new record highs.
“We have previously noted that home prices peaked in June 2022 and fell through January of 2023, declining by 5% in those seven months,” S&P managing director Craig Lazzara said. “The increase in prices that began in January has now erased the earlier decline, so that July represents a new all-time high for the National Composite.”
There it is. US home prices summited a new peak in July.
That such a feat was possible with mortgage rates near the highest in two decades speaks to the structural housing shortage in America and, crucially, to the idea that relatively high rates continue to discourage existing homeowners from selling, thereby exacerbating the imbalance.
In other words, high rates are curbing supply more than demand. So, high rates are driving prices up. It’s not inconceivable that such a dynamic could proliferate. High rates could paradoxically be inflationary on an economy-wide basis.
Needless to say, there are still regional disparities in housing. Lazzara described “the Revenge of the Rust Belt,” as prices in Chicago and Cleveland (not exactly dream locales in modern America) posted the largest YoY increases among major metropolitan areas, while red-hot Phoenix cooled off.
FHFA prices rose 4.6% versus last year, Tuesday’s release showed. “All nine census divisions posted positive price appreciation over the last 12 months, although the Pacific and Mountain divisions experienced only modest growth,” Nataliya Polkovnichenko, supervisory economist in FHFA’s research division, said.
As JonesTrading’s Mike O’Rourke put it last week, editorializing around housing market dynamics, “the reality is that some inflation issues will take time to be resolved.”
The outlook for housing affordability in America remains quite bleak.
I think there is a 3rd component to the continuing rise of housing prices, lack of supply due to the still roaring job market. Current homeowners are able to weather the inflation/QT storm because they are still able to easily generate income to sustain home ownership. Anyone who bought or refinanced during the Covid years has extremely low borrowing costs. While unemployment remains historically low and while there are still roughly 9M unfilled open positions, the housing market will remain constrained by supply bottlenecks.
I for one still believe everything rests on the net interest payment’s epic decline. When firms are finally forced to borrow at QT rates we’ll see mass layoffs which will then force asset sales including homes from main street and then home prices will decline due to the increased borrowing costs and the fact that we’ll be in an economic recession. Of course that’ll also prompt voters to re-elect the snake oil salesman who will promise to fix it all himself.