Between an ongoing decline in the annual rate of nominal home price appreciation and the energy-driven surge in headline CPI inflation, real US housing wealth fell the most since the summer of 2023.
That was the standout takeaway from Tuesday’s update on the marquee measures of US home values. The report also showed prices fell outright on a YoY basis in over half of America’s largest 20 metros in March.
In the accompanying editorial, Nicholas Godec, S&P’s head of FICC, described “a broadening and deepening housing slowdown.”
The figure above shows you the deepening contraction in real home price returns.
On the Case-Shiller 20-city gauge, the decline was nearly 2.5% during the first month of the war. (Remember: These indexes are updated on a two-month delay.) Using the broader, national index, the inflation-adjusted drop was even deeper.
In a continuation of the recent trend (which is itself a reversal of the pandemic boom dynamic), the Midwest showed relative strength while the Sun Belt sagged. Chicago led all cities with a 6.1% annual gain.
Commenting further on Tuesday, Godec said that notwithstanding a modest “spring lift,” the market has “little underlying momentum.”
The increase in mortgage rates (a function of higher Treasury yields) has “re-intensif[ied] the affordability squeeze on buyers, further damping home sales and price growth,” he added.
Real prices are in a years long process of correcting. It probably takes until the end of the decade. Better than a crash and makes housing more affordable for those currently locked out. Rates are one of the least important factors in pricing btw.
I think home-buying’s largely out of the question for GenZ and beyond. If you look out across the country and filter on real estate websites for homes that strivers (or “aspirers,” or whatever we’re calling them) would actually want, there are almost no metro areas of any significance where those kind of homes are less than $800k. Even in somewhere like Louisville, KY (hardly a city anyone would be excited to move to), you’re looking at $700k at least to get something half-assed.
Here’s a good example: https://www.zillow.com/homedetails/1507-Lincoln-Hill-Way-Louisville-KY-40245/310728406_zpid/
I realize calling that “half-assed” is insulting to some readers (a lot of people would call that a dream home), but I think most of you will generally understand what I mean: That listing, objectively nice as it is, is still a spec home, in a spec neighborhood and if you just kinda eyeball the details in the pictures (i.e., train your eyes to look past the faux-marble, etc.) you can tell it’s not especially well-built.
Point is: If you’re, say, 30 years old and you’re thinking “I wanna buy a house that’s objectively nice for me and my family that’s somewhere near a decent-sized city,” you’re looking at a bare, bare minimum of $740k, and that’s if you’re willing to go somewhere like Louisville.
Unfortunately, many of the new homes being built now start to really show their age after 15 to 20 years. Construction materials have been consistently downgraded in tract housing and well into the custom ranks. Many young families’ aspirational housing dreams are now restricted to high density cookie cutter homes with very little hope of reaching escape velocity.