The rise in home prices continues to slow, which is great news for home buyers—although stabilization of home prices might not have much of an effect on demand
Adding urgency to the ‘how low can they go’ conversation about interest rates, home price gains are slowing, which may mean that homeowners wanting to talk into their existing equity should move sooner rather than later.
Home price gains in 20 US cities slowed for the 15th straight month and were weaker than had been projected, which was a rise of 2.3%. The S&P CoreLogic Case-Shiller index of property values increased 2.1% from a year ago in June—the smallest gain since August 2012—versus a 2.4% gain in May. Prices were little changed from a month earlier.
The Federal Housing Finance Agency also reported a slowdown: its house price index increased a seasonally adjusted 4.8% in June from one year ago, following a 5.2% gain in May. House prices rose 0.2% on a monthly basis, which was the same as the increase in May. They were up 1% in Q2. The FHFA’s index is calculated by using purchase prices of houses financed with mortgages sold to or guaranteed by mortgage finance companies Fannie Mae and Freddie Mac.
The data supports the assertion that the overall housing market is slowing due to a number of factors, including increases in personal debt loads and wage increases that have generally not kept up with home-price increases.
There are some markets where this is felt more than others. The markets with the weakest home-price gains were Seattle, San Francisco, and San Diego. Seattle was the only market in the main 20 cities to post an actual decline, with a drop of 1.3% from a year earlier after a 1.2% fall that was the first decrease in more than seven years. The two southwestern markets of Phoenix and Las Vegas posted the strongest gains.
Existing-home sales rose to a five-month high in July, according to a recent report from the National Association of Realtors, and other data indicates that housing starts for single-family homes have climbed to the highest level since January as building permits rebounded.
High employment rates also continue to support home sales, so there are some people who believe that a decline in home-price increases isn’t necessarily a bad thing.
“Home-price gains continue to trend down, but may be leveling off to a sustainable level,” said Philip Murphy, global head of index governance at S&P Dow Jones Indices.
The definition of “sustainable”, of course, varies by market. Low mortgage interest rates are likely to support demand as well as home price gains.
“This should lead to a longer summer buying season and a potentially a higher rate of appreciation,” said Lynn Fisher, FHFA senior advisor for economics.
There’s no indication that demand will decrease anytime soon, which may mean that home prices increases will not slow dramatically. A report from the Conference Board showed that 6% of respondents in August said they plan to buy a home within six months, down from a reading of 7.4% that was the highest since 2017.
