The real estate cycle change is here. Farewell to the housing bull run. Home prices in the United States have started falling for the first time in a decade.
According to the S&P CoreLogic Case-Shiller Index, the price in the 20 largest cities in the United States fell 0.44% month-on-month in July, the first decline since March 2012. The last real estate crash ended in 2012, giving way to 10 years of rising pricescrowned by a two-year shopping spree.
The Federal Reserve put an early end to the party in its fight against inflation. Mortgage interest rates have doubled this year, scaring off many buyers and slumping sales. The largest month-over-month declines in July occurred in San Francisco (-3.6%), Seattle (-2.5%) and San Diego (-2%).
“The cooling came hard and fast,” Stephen Stanley, chief economist at Amherst Pierpoint, said in a note.
Without a doubt, prices remain high. The national Case-Shiller index rose 15.8% year-on-year in July. But it was the smallest rise since April 2021, and the slowdown since June’s 18.1% jump was the biggest slowdown in the index’s history.
Also there are signs that there is a lot of pent-up demand for housing. New home sales in the United States rose unexpectedly in Augustaccording to US government data.
This is the highest rate of new home sales since March, possibly reflecting a race by buyers to avoid further increases in borrowing costs and take advantage of price cuts by some manufacturers. Sales of new homes increased in all regions, including a 29.4% increase in the South, where the pace has been strongest this year.
House price declines have been greatest in the most unaffordable areasparticularly on the West Coast, where buyers were already struggling earlier in the year when rates were still near record lows.
The decline looks extreme compared to two frenzied years, marked by multiple offers and housing shortages that prompted buyers to outbid.
Now listings of homes for sale are held longer as demand has dropped, increasing inventory. One thing can help keep prices down: fewer homes are coming on the market.
Owners who do not have to move stay in place. Buying a home for the most part requires foregoing a cheaper mortgage. A recent report from Zillow Group Inc. shows that new home listings for sale were down nearly 23% in August from a year earlier.
Meanwhile, the Federal Reserve continues to push interest rates higher. “Given the outlook for a more challenging macro environment, house prices may well continue to slow,” said Craig J. Lazzara, global head of investment strategy at S&P Dow Jones.