- Home prices fell for the second month in a row, data from Case-Schiller showed this week.
- In general, forecasts have turned bearish on the future of the housing market.
- 30-year fixed-rate mortgages now hover around 7%, up from 3% at the start of 2022.
It’s official: US home prices are trending down nationally.
According to data from the S&P CoreLogic/Case-Schiller NSA National Home Price Index, which measures home price growth in 20 cities across the country, home prices fell an average of 1.63% between July and August. It’s the second straight month-over-month decline the index has seen.
But in the latest reading, for August, which was released this week, year-over-year price growth fell the most in the index’s history. Year over year house price growth was 15.6% in July and fell to 13% in August.
Federal Reserve Bank of St. Louis
Across the country, declines were worse in some cities compared to others.
Cities in the index that saw month-over-month declines greater than the average decline of the 20 cities in the index include: Dallas, Texas (1.91%); Denver, Colo. (2.29%); The Angeles, California (2.25%); Phoenix, Arizona (2.14%); Portland, Oregon (1.94%); Saint Diego, Calif. (2.76%); Saint Francis, California (4.28%); Y Seattle, Wash. (3.87%).
With interest rates high, and expected to rise further and stay there, at least according to the Fed’s forward guidance, forecasts for the housing market have turned bearish across the board. Rates on 30-year fixed-rate mortgages are hovering around 7% currently, up from 3% in early 2022. This is killing buyers’ ability to pay higher prices.
Housing affordability — when you factor in home prices, mortgage rates and incomes — is now at one of its lowest levels in decades, according to data from the National Association of Realtors.
Yardeni Research
“As the Federal Reserve raises interest rates, mortgage financing becomes more expensive and housing becomes less affordable,” Craig J. Lazzara, managing director of S&P DJI, said in the index release on Tuesday. “Given the continued outlook for a challenging macroeconomic environment, home prices may well continue to slow.”
Scott Buchta, chief fixed income strategist at Brean Capital, also said in a memo on Wednesday that the decline in home prices would continue and eventually fall year on year.
“We continue to expect home prices to fall between 3% and 5% in the second half of 2022, and between 5% and 10% between July 2022 and June 2023, and with rates around 7 .00%, we would probably tilt our bias toward the broader end of those ranges,” Buchta said. “The end result will be slower prepaid speeds (lower billing and cash-out refinancing rates) as the ‘lockdown’ will also have an impact on sales volumes.”
Bill Adams, the chief economist at Comerica Bank, also expressed a similar view in a statement on Wednesday.
“With mortgage rates hovering around 7%, affordability at an all-time low, but existing housing inventory still tight, the US economy is in the early stages of a large correction in housing activity and likely a more modest correction in Comerica forecasts for the major home price indices to see cumulative mid-single-digit high-to-low declines from mid-2022 to mid-2023.”
Some economists who have been warning of declines since early this year are forecasting bigger drops. Both Ian Shepherdsonthe chief economist of Pantheon Macroeconomics, and Desmond Lachmansenior fellow at the American Enterprise Institute, they call for declines in the 15-20% range, for example.
Many see the so-called “Fed pivot” back to dovish policy as necessary for mortgage rates to come down. That may happen next year if a recession develops and consequently inflation falls, but as of now, the central bank is communicating its determination to keep rates high, circumstances permitting.
