It appears that the tide may be gradually turning towards the housing market.
The S&P CoreLogic Case-Shiller home price index fell 0.3% in July from June, the largest monthly decline since November 2014.
Sure, prices are up 15.8% in the twelve months to July, but that’s still a slowdown from 18.1% in the 12 months to June. The difference of 2.3 percentage points is the largest slowdown in the index’s history since the 1980s.
“Although US home prices remain well above their year-earlier levels, the July report reflects a strong slowdown,” Craig Lazzara, managing director of S&P DJI, said in a statement.
“As the Federal Reserve continues to raise interest rates, mortgage financing has become more expensive, a process that continues to this day.”
Mortgage rates have risen this year, which could suppress housing demand, leading to lower house prices. The 30-year fixed rate mortgage was 6.29% in the week ended September 22.
Homebuyers with a monthly budget of $3,000 can purchase a $479,750 home at 6% mortgage rates, down from $621,000 a year ago, when mortgage rates prevailed at 3%, according to real estate brokerage Redfin.
“Given the prospects for a more challenging macroeconomic environment, home prices may continue to slow,” Lazarra said.
New home sales
Meanwhile, sales of new single-family homes rose 29% in August compared to July, marking the highest total since 2008. But it was down 0.1% from August 2021, according to government data.
The new home price trend is similar to the Case-Shiller report. The median sales price for a new home fell 6.3% in August to $436,800 from $466,300 in July.
Selling prices posted an 8% annual increase in August, the first single-digit increase since mid-2021, and a slowdown from 14.9% in July.
Just like home prices, rents are starting to drop as well.
Average rent demand for two-bedroom properties dropped to zero to 0.6%, or $10, to $1,771 in August from July, according to Realtor.com. This is the first drop in the Top 50 cities since November.
“It may be a sign of the return of regular seasonal cooling to the rental market, as seen in recent selling data,” Realtor.com economists Jiayi Xu and Danielle Hale wrote.
But this may also indicate that rents have peaked, as interest rate hikes by the Federal Reserve are starting to have a negative impact on the economy.
To be sure, rents are still up 9.8% in the 12 months through August. But this is the first time the increase has been in the single digits since July 2021.
In any case, “real affordability challenges persist, as inflation continues to outpace annual wage growth, evaporating the real gains that employees might see from a robust labor market,” said economists at Realtor.com.
Consumer prices jumped 8.3% in the 12 months through August, while average hourly wages rose 5.2%.
Coming back to the issue of home purchases, if the Fed puts too much of a dent in the economy by raising interest rates, that along with higher mortgage rates could drive home prices down significantly.