Home Price growth slowed at A record pace in july
“As the Federal Reserve continues to move interest rates upward, mortgage financing has become more expensive, a process that continues to this day. Given the prospects for a more challenging macroeconomic environment, home prices may well continue to decelerate.”
It appears that the US housing market is beginning to cool off, as reported by the recent S&P Corelogic Case-Shiller index report published for July 2022. The consequences of the past 15 years of monetary and fiscal policy paved the way for steady but significant housing price appreciation between the trough of 2009 and the peak of prices in 2022.
The standout data point is that the national composite home price index for the 12 months leading into June 2022 rose 18.1% YoY, while the same measure into July 2022 rose 15.8%. The data shows that while home prices are still appreciating on a national level, the trend is starting to decelerate at a rate not seen in the history of the index.
Home sales in the US are extremely rate sensitive, evidenced by the clear correlation between home price appreciation and the 30-year interest rate environment. S&P DJI’s managing director Craig Lazzara commented to that effect:
“As the Federal Reserve continues to move interest rates upward, mortgage financing has become more expensive, a process that continues to this day. Given the prospects for a more challenging macroeconomic environment, home prices may well continue to decelerate.”
Seeing the data would suggest that a sudden deceleration in home prices is reminiscent of the great financial crisis of 2008-2010, which in a sense is true. Diving deeper into the near term historical context suggests a more acute reaction is a necessity due to the environment caused by COVID. Rapid home price appreciation in the past two years in markets like Tampa and Miami, which appreciated at 32% YoY, suggests that migratory patterns were fueled by low-interest rates on top of geopolitical reasons.
Migration to states like Florida and Texas clearly stood out in the Case-Shiller data published in July among the 20 cities measured. All of the states published in the study posting 20%+ YoY gains were in the Sunbelt regions of the US.
As interest rates remain elevated against recent levels and home prices remain at highly-appreciated current levels, consumer purchasing power will continue to decrease and home prices should continue decelerating over the coming year. Supply and demand will have to return to more normal levels, in line with revised consumer buying power, in order to return home price growth to sustainable levels.
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