Home prices continue their sharp decline, as the latest data from the S&P Case-Shiller Index showed another significant drop in August, with prices now up 13% year-over-year compared to 15.6% in July. That monthly decline is a record in the history of the index, which launched in 1987.
As sales and new constructions have both seen historic declines as well, many economists have projected that limited inventory will keep prices from bottoming out the way they did in 2008. With positive growth from last year, many observers remain hopeful for a so-called “soft landing” from recent pandemic highs.
This continued deceleration, however, could shake consumer confidence as high mortgage rates and other looming economic concerns suppress real estate activity.
Key findings:
- The 10-City Composite annual increase came in at 12.1%, down from 14.9% in the previous month. The 20-City Composite posted a 13.1% year-over-year gain, down from 16% in the previous month.
- All 20 cities in the composite reported lower price increases in the year ending August 2022 versus the year ending July 2022.
- Miami, Tampa and Charlotte reported the highest year-over-year gains among the 20 cities in August. Miami led the way with a 28.6% year-over-year price increase, followed by Tampa in second with a 28% increase, and Charlotte in third with a 21.3% increase.
- On a month-over-month basis, the biggest declines occurred on the West Coast, with San Francisco (-4.3%), Seattle (-3.9%) and San Diego (-2.8%) falling the most.
- July’s monthly decrease of 2.3% is now the second-largest drop on record.
The takeaway:
“As the Federal Reserve moves interest rates higher, mortgage financing becomes more expensive and housing becomes less affordable,” said the author of the report. “Given the continuing prospects for a challenging macroeconomic environment, home prices may well continue to decelerate.”
Craig J. Lazzara, managing director at S&P DJI, commented:
“Home prices will certainly drop from peak levels reached earlier this year as demand dwindles. However, supply is also going to stay low, and as a result, we should not expect massive price drops like what we saw during the last housing market downturn. Even with price declines, in most markets, home values will remain much higher than they were three years ago.”
Dr. Lisa Sturtevant, chief economist at Bright MLS, commented:
“With inflation still running high, and seemingly unaffected by this year’s monetary tightening, the Federal Reserve will continue to push the funds rates higher. In turn, mortgage rates will climb through the end of 2022, further clamping down on buyers’ ability to afford a home. As we move into the colder months of the year, we can expect further declines in home sales and continued downward adjustment in prices.”
