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Shortly after mortgage rates spiked this spring, the overheated U.S. housing market cooled. That swift pullback in buyer demand finally gave inventory breathing room to rise. The factors that determine the demand, supply, and value of housing are not the same across different property types. Consequently, the price dynamics of different property types within the same market often vary, especially during periods of increased market volatility. In addition, the relative sales volumes of different property types fluctuate, so indices that are segmented by property type will more accurately track housing values.
Prices usually fall during that time, due to the strong seasonality of the housing market, but the decline was three times the average decline historically. Home prices in July were still higher than they were a year ago, but cooled significantly from June gains. Prices nationally rose 15.8% over July 2021, well below the 18.1% increase in the previous month, according to the report. Among the country's 400 largest housing markets, 36 markets are back to pre-pandemic housing levels. Fast-forward to today, and those "significantly overvalued" markets, on aggregate, are shifting faster.
Using 1990 as the Base YearHouse Prices in January 1990 = 100
Quotes displayed in real-time or delayed by at least 15 minutes. Moody's Analytics forecasts the Case-Shiller® Indexes under standard alternative scenarios, regulatory scenarios and a constant severity scenario independent of current business cycle conditions. Analysis and forecasts are based on a fully specified supply-and-demand model.
On a monthly basis, home prices dropped 1.5 percent in September, a third consecutive month of decline, with prices falling across all cities. The S&P CoreLogic Case-Shiller 20-city home price index in the US increased only 16.1% year-on-year in July of 2022, decelerating for a third consecutive month, and below market forecasts of a 17% rise. It is also the smallest increase in home cost since April last year, with all 20 cities reporting deceleration, as the Fed continues to move interest rates up, making mortgage financing more expensive. Prices in Tampa (31.8%), Miami (31.7%), and Dallas (24.7%) rose the most while Minneapolis (9%), Washington (9.4%), and San Francisco (10.8%) recorded the smallest increases. Meanwhile, the National Composite Index rose by 15.8% in July, following an 18.1% hike in June. The -2.3% difference between those two monthly rates of gain is the largest deceleration in the history of the index.
S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index
The 2.3 percentage point "difference between those two monthly rates of gain is the largest deceleration in the history of the index." One of the best indications might be the direction of inventory—and its speed of change. At first glance, it might be easy to assume that inventory (i.e. active listings for sale) is simply a measurement of supply, however, it's also a measurement of demand. If homebuyers pull back, and homes sit on the market longer, that can increase inventory levels (currently up 46.8% year-over-year) even if new listings (currently down 17.3% year-over-year) decline. On the housing supply front, things remain fairly tight nationally. While spiked mortgage rates corresponded with a huge decline in demand, it hasn't caused sellers to rush for the exits.
"This will be the first spring selling season since 2008 where mortgage rates are ~6%, so we're expecting a bumpy ride in general for sellers, especially if the economy is officially in a recession." Why are inventory levels spiking in some markets and flat in others? A sudden inventory spike often marks a housing market that has moved into a full-blown correction. Of course, we now know that's exactly what happened this summer in markets like Austin and Phoenix, where home values are already down 10.4% and 8.1% from their respective 2022 peaks. The S&P/Case-Shiller Home Price Indices originated in the 1980s by Case Shiller Weiss's research principals, Karl E. Case and Robert J. Shiller. At the time, Case and Shiller developed the repeat sales pricing technique.
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They are used as the underlying pricing mechanism in Chicago Mercantile Exchange real estate futures and options. James Chen, CMT is an expert trader, investment adviser, and global market strategist. He has authored books on technical analysis and foreign exchange trading published by John Wiley and Sons and served as a guest expert on CNBC, BloombergTV, Forbes, and Reuters among other financial media.
Her expertise is in personal finance and investing, and real estate. Tampa and Miami reported the highest year-over-year gains among the 20 cities in July. Tampa led the way with a 31.8% year-over-year price increase, followed by Miami in second with a 31.7% increase. The S&P CoreLogic Case-Shiller index, which covers all nine U.S. census divisions, reported a 15.8% annual gain in July, down from 18.1% in the previous month.
However, the number still remains far below the pre-pandemic active listing count of 1.14 million in November 2019. An affordability index is a measure of a population’s ability to afford to purchase a given good or the cost of living in a given area. The ACCRA Cost of Living Index provides a benchmark for comparing the cost of living across different geographic areas at the same time. Twenty individual metro-area indices for each of the cities listed above.
The 20-City composite, which adds regions such as the Seattle metro area and greater Detroit, gained 16.1%, down from 18.7% in the previous month. July's year-over-year gains were lower compared with June in each of the cities covered by the index. Tampa, Miami and Dallas saw the highest annual gains among the 20 cities in July, with increases of 31.8%, 31.7% and 24.7%, respectively. While Morgan Stanley researchers don't think tight inventory will prevent home prices declines, they do believe tight inventory levels will prevent a 2008-style crash. The repeat-sales method is a manner of calculating changes in the sales price of the same piece of real estate over specific periods of time. But the key to the reliability of the indices is what they represent.
Researchers at Morgan Stanley say those housing bulls should reconsider their stance. Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in oureditorial policy.
Despite the ongoing deceleration, August’s housing prices remain well above year-ago levels in all 20 cities. Given the continuing prospects for a challenging macroeconomic environment, home prices may well continue to decelerate", says Craig J. Lazzara, Managing Director at S&P DJI. The S&P CoreLogic Case-Shiller 20-city home price index in the US increased by 10.4 percent from a year earlier in September 2022, the least since December 2020 and below market forecasts of a 10.8 percent increase.
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