The Case-Shiller Home Price Index declined another 0.3 percent in May.
Chart Notes
OER is the BLS measure Owners’ Equivalent Rent, the price homeowners would pay to rent their own home unfurnished, without utilities.
Case-Shiller measures sales prices of the exact same home over time. It factors out major improvements.
It a better measure than median or average prices because the latter does not factor in square footage, location, lot size, or amenities.
However, Case-Shiller is a lagging indicator.
The latest report is for May but that includes sales for March, April and May. Moreover, the sales reflects the date when the sales closed, not when the contracts were signed. March closing prices could include contracts signed as far back as January.
Percent Change Since January 2020 (Through May)
- Case-Shiller National: 52.1%
- Case-Shiller 10-City: 52.4%
- OER: 44.9%
- CPI Rent: 28.0%
- CPI: 24.3%
CS National, Top 10 Metro Percent Change from Month Ago
Prices are now down the third consecutive month.
The Decline Barely Registers
- From the peak, National is down 0.9 percent
- From the peak, 10-City is down 0.6 percent
In declining markets, prices are lower than the report indicates and in rising markets prices are higher than the report indicates.
Year-Over-Year Prices Still Up
Many Millennials and Zoomers are angry at being priced out of homes rising more than double the alleged CPI.
Mess Entirely of Fed’s Making
This is a mess entirely of the Fed’s making. And it’s what happens when the Fed, and economists in general do not count home prices as inflation.
Home prices are not directly in the CPI or PCE. The latter is the Fed’s preferred measure of inflation.
Economists consider home prices a capital expense not a consumer expense. The problem is simple: Inflation is not just a consumer price concern!
The Fed ignored obvious inflation in the Great Recession and did so again in the Covid recession.
The Fed does not know what to do now because there is no good answer.
For homes to become affordable again. mortgage rates need to decline and home prices need to fall dramatically.
Existing-Home Sales Decline 2.7 Percent
On July 23, I reported Existing-Home Sales Decline 2.7 Percent, Median Price New Record High
Hooray, higher prices? That’s the message from the NAR.
That alleged Median Price Record did not happen. The NAR does a terrible job at seasonal adjustments (if it tries at all).
Click on above link for discussion. And expect rapid decline now in NAR median prices.
Most Completed Home For Sale Since the Great Recession
Also note Home Builders Have the Most Completed Home For Sale Since the Great Recession
You have to go back to July 2009 to find more completed homes for sale.
Factor in rising home inventories, lags, and a slowing economy. Home price pressures are hugely negative.
“That alleged Median Price Record did not happen.”
How can you say this with a straight face, when from the previous article you report:
The median existing-home price for all housing types is up 2% from one year ago ($426,900) — a record high for the month of June, and the 24th consecutive month of year-over-year price increases.
Are you really saying the NAR (which I agree is cheerleaders) has been wrong 24 months in a row? Their ability to “seasonally adjust” is really that bad?
He’s saying that the mix-shift of homes that have been selling (likely to less-price-sensitive people with more money) versus those that haven’t been selling, have pushed up the median artificially. As in, it wasn’t pushed up by actual across the board higher prices.
Once the economy starts to falter, divorces will follow, which means houses will get sold.
Plus the people selling simply to downsize/cash out the equity as a last resort.
This covid orgy has gone on for so much longer than so many people thought possible…surely the cops would have shown up by 2023, 2024, 2025, 2026?!? Maybe they can keep the stock market part of the orgy propped up indefinitely, but housing requires real money in people’s hands, and that means MOST people’s hands, not just the top 10%. Are they finally out of ways to extend and pretend?
I live in Denver.
Case-Shiller prices are off their 2022 peak. By a little nominally and by a lot more if you factor in inflation. Back to January 2021 inflation adjusted prices.
In my neighborhood (9K pop, very micro) there are lots of price reductions ($50-100K) from the initial price. I track these with a 1700 row spreadsheet.
well like a famous person said about the 2008 housing price decline… people were complaining about high home prices but when they dropped suddenly nobody wanted it.
Timmy, please endorse Omar Fatah, Mamdani of the mid west.
Mamdani of the Midwest- only more retarded.
RE transaction will fall even with lower rates and lower prices. It’s a systemic change. More apt in vacant commercial buildings. Twenty/Thirty floors apt buildings instead of ten houses on 3/5 acres.
Lower rates will unlock supply – which could suppress values.
Yes, this is possible.
Also note that the Fed will lower rates in a normal recession.
Recessions are hardly conduits for rising home prices.
SNAP are down $186B in ten years. The poor will not be able to pay rent, or car loans. They will use c/c before defaulting. More commercial and apt vacancies. Supermarkets and corner stores will suffer. AMZN too (40 millions potential snap customers).
The cure for high prices, is high prices.
House Prices are already going down in most of the country, simply because there are no longer enough willing buyers at the recent nosebleed price points.
Builders have already cut prices (with incentives and buy downs as well as lower list prices). Builders are now undercutting existing homeowners.
As more owners realize they now face imminent capital losses, selling pressure is increasing. “Months of Supply” is already soaring for both new and existing homes.
In a couple of years, after the Fed catches up to the situation, interest rate cuts might eventually help to prevent the decline from being even worse. But since their metrics lag the market, the Fed will be late as usual.
The problem with gearing the ENTIRE economy to run on (only) Greater Fool mode, is that eventually, you do run out of Greater Fools. Thank you for the excellent stewardship of the economy and markets, Boomers.
Great summary of where we are. But remember that there will always be a large number of Greater Fools. But you must consider that the time will come when none of them have the money, or credit needed to buy from the last Fool.
I guess that’s what I meant, creditworthy greater fools 🙂
I have this book of predictions by Criswell, still waiting.
I have another from the late 70’s with articles from scientists and psychics and tech fans.
None came true.
US will have a total economic collapse to reset just like Russia. Before, or during, there will be a war.
Laws already in place for a draft and to place dissidents into detention centers.
When rich folk homes fall to Detroit prices then you hit top or bottom depending on how much social credit you have.
don’t worry, the longer it takes predictions to happen the more astounding they are. That’s sarcasm.
The massive correction we all new was eventually coming is likely coming very soon. Could start in earnest this year.
How many decades are we into a DEPRESSION? They keep redefining recession.
What truly baffles me are the world wide arson fires being set.
I get the point in the US about stealing land for big business but in Cypress is that just some foreign players copying the western game plan?
I meant to add this to the Cyprus point
Albanian wildfires are not due to “climate change”; 18 suspected arsonists have been arrested
Just gimme a couple months to offload my hog of a house.
California Democrats want to destroy single family homes and replace them with apartment buildings, having taken zoning controls away from localities. City authorities have also been dragging their feet on approving permits for rebuilding plans in the Palisades fire zone, after claiming that red tape would be cut.
Yes I’ve read some articles about this. Its shameful what’s happening to those who lost their homes in the fires.
Once there was a concept known as Too Big To Fail.
California is Too big To Save.
PS I think Mish would also put Chicago on that list, I have.
House prices need some sanity. Better for some air to come out gradually, rather than an economy-wide crash. I say that as a person with most of my wealth in real estate, but fortunately I bought in a long time ago, so I can take considerable draw-downs. Gains are nice, but I don’t expect astronomical gains.
The slow-moving national average hides enormous local variations.
Prices in some metros are already down >20% from the 2022 peak, particularly for condos. That’s no longer “some air coming out gradually”.
Once momentum starts to the downside, the air whooshes out a lot faster.
Not really. Someone pointed out a few months ago that those underwater can’t afford to sell because they don’t have enough after a sale for a new, another, home.
So they sit and wait.
There is some middle aged blondish hair guy with sunglasses walking neighborhoods talking about housing surplus and lack of sales. I think he is on Citizen Watch.
Pretty insightful but I only link to him accidentally from other sites. So no name. He may be in Fla.
Market crashes often happen on very little trading volume so it doesn’t really matter. In fact having little liquidity can increase volatility. People who trade one house for another house don’t tend to affect the market supply one way or the other because they sell in about the same price range as they buy. It’s the highly leveraged speculators that own six properties that will be out first. Leverage allows people to make a lot of money, but they’ll lose it just as quickly going the other way.
No, rip the band-aid off and let the economy found a new, natural, level. Young people can’t be shut out of an entire economy like this forever, it’s a guaranteed recipe for communists in office.
It’s of the Fed’s making, but, not because of how they count inflation. And not all of their making either as their rates don’t DIRECTLY relate to 10 yr rates and thus mortgage rates.
The real issue is that for a brief moment in time (summer of 2020 through spring of 2022), mortgage rates fell to incredibly low rates. This in turn, allowed all of the buyers in that time frame to be able to afford more house, without higher payments. So, they did what people do when they are able to “get a good deal”, they took advantage of it! Thus, bidding up the housing market nation wide to the tune of 50 percent in two short years. This is the kind of appreciation that would normally take 8 to 12 years to see at the typical 4 percent per year historical price appreciation, but, happened in less than 2 years.
Now, those prices are “in the market” but, no longer applicable. The solutions IS NOT to lower rates to reinflate the bubble further. The solution is to wait.
Those who want to sell their homes might have to take slightly less, if they want it sold quickly, or, if their home needs work. Prices should be flat to lower for the next 5ish years depending on what has already happened in your local area. If they need to come down, because no one is buying, then they will come down. They might stay flat for 10 years, who knows, but, the answer to get them moving again after they got overpriced for 2 years is not to prime the pump again with artificially low rates. It’s just going to take time to fix something that happened due to the pandemic and rates reaction to that. People can blame the Fed all they want, but, in the end, the 30 year mortgage is correlated most closely to the 10 year Treasury, which is a market rate, and responded to market expectations during the pandemic.
I hope we don’t try to “fix” the current situation with the exact “medicine” that got us where we are in the first place.
I see another comment mentioning Midwest and Northeast. I’m in Texas, and know the local real estate market well here in my city. Prices have already been relatively flat for 3 years now (since mortgages climbed over 5.5 percent in the spring of 2022), with this year actually showing small price declines from last year. I don’t expect any kind of bloodbath here in the Houston area, but, I do expect flat to slightly down prices going forward for some years.
Not to mention the refi phenomenon from that period. We refinanced a 30 year 4.375% to a 20 year 2.375%, rolled in $10s of Ks of cash debt, and the monthly payment was STILL lower than before the refinance (even ignoring interest on that cash debt).
So in addition to the opportunistic buyers, we have mid-mortgage refinancers, few of whom are likely to sell before they satisfy their mortgage. That sidelines a ton of supply in addition, and maybe that has just delayed the visibility into the market going over its top into the beginning of a decline phase.
That’s true, a lot of people did refinance and that has caused the “lock in” affect, since nobody wants to give up their sub 4 percent mortgage (Or even Sub 2.5 in your case!) to take out a 7 percent one. But, for whatever reason, this spring and summer in my area, people are indeed putting their homes on the market.
Insurance, taxes, life events, investor remorse, death, back-to-office calls. There are a whole lot of reasons why even the rate lock-in effect can’t hold back sellers forever.
Most of the Midwest and Northeast US are still seeing hefty price increases.
60-90% of homes going over list prices in the suburban Hartford area. 105-110% over asking prices.
If and when interest rates are cut and mortgages are 5% instead of 7%, it’s going to result in an explosion of prices in the Hartford area, as if the current prices aren’t high enough.
Areas of the country that are seeing actual housing busts (Texas, Gulf Coast, Florida) will not be helped much by interest rate cuts.
An interesting recent news story is that out of the top 50 metro areas in the country, only Pittsburgh has a lower price to buy versus price to rent. It makes no economic sense to buy right now in virtually every area of the country.
Realty com bs: rent $1500, starter home cost: $1,370. The average rent is $1,500. The average home is $480,000. Mortgage: 6.8%. PGH is sold out. New listing lowest in the country. The Germans bought everything. Commercial RE vacancies are rising.
Here in Florida, homes are sitting on the market longer, more price cuts are coming about to make a sale, and builders of new construction are having to offer pretty big incentives to move inventory. Existing homeowners can sit on their homes indefinitely….builders cannot as they have bills to pay. SW-Florida seems to be hit the hardest right now, much of it hurricane related.
Florida rose the most during Covid. Therefore most prone to take a hit.
Many existing owners cannot sit on their homes indefinitely though. Life eventually happens for a percentage of them, and it only takes a percentage to “mess up” the comps for everyone else in the subdivision.
For prices to go down, interest rates need to go up.
The second part happened, and the first part is in the process of happening as the smarter sellers figure out what’s going on, lower the price a bit, and sell to the knife catchers.
As the realization spreads among sellers, price drops will pick up speed.
That’s ridiculous. All that needs to happen is for sentiment to change, for any reasons.
Recession and fear are two possibilities.
Please note that prices PLUNGED in the Great Recession with interest rates cut to zero,
It’s not ridiculous.
Real estate is uniquely rate sensitive because two-thirds of real estate buyers rely on access to credit.
The Great Recession was brought about by a credit bubble which, in turn, caused the asset bubble in real estate. Real estate prices plunged in the Great Recession because credit dried up.
Zero-bound interest rates were insufficient because trust in the credit system evaporated. Once that occurred, real estate demand plummeted without access to mortgage financing. In short, no one was willing to lend.
I think Naphtali’s point is perfectly valid. Rates going up would obviously have the effect of putting downward pressure on prices of real estate.
Are you trying to prove you cannot read or think.
Statement 1: For prices to go down, interest rates need to go up.
Me: All that needs to happen is for sentiment to change, for any reasons. Recession and fear are two possibilities.
Please note that prices PLUNGED in the Great Recession with interest rates cut to zero.
That is proof of the silliness of statement 1.
Now you come by and prove you cannot read. That makes Naphtali’s point is logically ridiculous.
I expect falling prices no matter what interest rates do. But that a guess.
What’s no a guess is the illogical and ridiculous nature of your reply despite me spelling things out.
For any incline or decline sentiments change.
Only a total reset will save the mess that stretches across the world.
New homes are built like crap. Old homes need refurbished. People have too much debt because they chase shiny things. Student loan recall dumped a LOT of people into financial crisis. Even auto insurance rates are based on credit scores.
Most people follow a simple linear pigeon hole when multiple unexpected angles impact much harder now.
Even Klarna is demanding immediate payment.
Just wait until Medicaid and Section 8 cuts set in. Not enough Doordash jobs to keep up with the Jonses.
More homeless more state repo’s for property tax more rundown buildings.
If most people are dumb they are even dumber about money.
Looking back from five years down the road to today as the good times.
I’m not even counting the social cracks like the most recent shooter.
An example of unexpected impact. Grid problems and price increases coming.
ChatGPT passed a CAPTCHA test today. Not by accident, not through a browser quirk, but by clicking straight through the “I’m not a robot” checkbox. It fooled a system designed to block bots, and it did it cleanly. This is not just a party trick. If bots can pass human tests, the web’s default defenses are no longer trustworthy.
Meanwhile, the biggest power grid in the US is showing cracks. PJM Interconnection, which serves 65 million people, just held a capacity auction where prices jumped another 22% year over year. These are the prices utilities pay to guarantee enough electricity in the future. They are not just rising. They are spiking. Last year’s prices were already 800% higher than the year before.
From ZH
Authored by Kurt Cobb via OilPrice.com,
Electric transformers aren’t something most people think about unless one attached to the power lines serving their home or business is damaged, resulting in a power outage. Most of the time, power comes back on quickly, indicating that the transformers were not the problem. It takes longer to replace a transformer damaged beyond repair.
If rates dropped from 6.875 to 4.875, a lot of supply would hit the market – very possibly more than it could absorb. Prices could drop. I didn’t expect home prices to rise when rates rose 4.5% but they did. A drop in rate could reverse that, counterintuitive as it may be.