We’re witnessing “a decisive shift” in the US housing market.
Specifically, it’s shifting decisively in the direction of being so vexing that a lot of Americans would rather just rent forever.
I’m just joking. Not really — that is in fact how some people feel — but the “shift” quote’s a nod to decelerating price growth, and thereby to the prospect that the affordability calculus may improve going forward, at least in real terms (i.e., when adjusting for wage growth and inflation).
Property values rose less than 2% on a YoY basis in June, according to Tuesday’s update on the index formerly known as the S&P CoreLogic Case-Shiller national gauge. Now, it’s the S&P Cotality Case-Shiller index, and it rose 1.9% two months ago. (Remember: This family of indexes is calculated and published on a near two-month delay.)
The 1.9% rate counted as the slowest in two years. The 20-city gauge rose 2.1%, likewise the most subdued rate since a fleeting streak of YoY declines midway through 2023.
As the figure reminds you, the pace of annual price appreciation’s been slowing since February.
“For the first time in years, home prices are failing to keep pace with broader inflation,” Nicholas Godec, S&P Dow Jones’s head of FICC, said, in the color accompanying the release.
The figure below’s worth bookmarking. It’s just the 20-city gauge adjusted for inflation using headline CPI.
As you can see, we’re now in a place where housing wealth’s “falling.” Note the scare quotes. “Falling” isn’t a misnomer in this context exactly, but it kinda feels like one.
Godec called the reversal “historically significant.” “American housing wealth has actually declined in inflation-adjusted terms over the past year, a notable erosion that reflects the market’s new equilibrium,” he went on.
As discussed here on multiple occasions over the past two months, the US housing market’s shifted in favor of buyers, who are relatively scarce.
On Redfin’s estimates, sellers outnumber buyers by nearly half a million. And yet, as the figure above makes clear, headline price relief remains hard to spot.
Although the supply-demand imbalance is finally starting to work its “magic” on prices, it’s important to bear in mind that we’re still asking everyday people to finance a $400,000 purchase at 6.75%. That’s pretty daunting, particularly when you consider all the ancillary (and in most cases obligatory) costs that go along with homeownership.
Summing it all up, Godec said the US housing market “appears to be settling around inflation-parity growth rather than the wealth-building engine of recent years.”
Meanwhile, the FHFA took some time away from building a RICO case against Lisa Cook to release their quarterly housing market report alongside monthly data on Tuesday. The agency’s house price index rose 2.9% in Q2 versus the same quarter a year ago. It was unchanged versus Q1.
I don’t know to what extent, but I’m fairly sure these sorts of market-wide numbers dominated by the large urban markets for home prices. What I’ve noticed in some of my area of the Midwestern US is that demand for recreational property (hunting, off-grid, outdoorsy, northern waterfronts) is waaaaayyyy off. A few places are selling, but often at 20, 30, 40% off their listing price and after many months on the market. Underpriced properties can sell quickly, but that that’s all that is selling quickly, or at asking price. What’s it all mean? These aren’t huge deals, mostly in the 50-300k range, but the people who can buy those properties seem to be stepping back and rethinking priorities. Necessity purchases (homes to live in) Yes, Discretionary purchases Not So Much.
Here in Florida, prices are scoffed at within the central area and the sentiment is spreading outward rapidly. One of my best friends in Tampa just had a Tower of Babel sized townhouse site go up next to his place that looks so out of place for his neighborhood that I now know what street to turn on because it’s such an eyesore. Only one has been occupied of the three and they’re asking almost $1M for each of the units. Residents hate it and the parking situation is something akin to a college bar. There’s a sense of desperation in new construction that feels as if we’re still in 2021 and people long for something to live in that will appreciate within a year. As you said, the only things selling are discounted and more people are looking outward to parts of Florida that once seemed ‘too country’ as absolute deals because more and more buyers will wake up to the realization that occupying an area that has been discounted will bring commercial business there quickly.