After tumbling for the first time since 2012 in July, Case-Shiller’s 20-City Composite Home Price index was expected to drop even faster in August (the latest data available) as mortgage rates soared, crushing affordability. Analysts were right as the 20-City Composite index plunged 1.32% MoM (far larger than the 0.8% drop expected), diving the YoY growth in the 20-City Composite to 13.08% (well down from the 14.0% exp)
Source: Bloomberg
That is the biggest MoM drop since March 2009 and the slowest YoY growth since Feb 2021.
“The forceful deceleration in U.S. housing prices that we noted a month ago continued,” Craig J. Lazzara, managing director at S&P Dow Jones Indices, said in statement.
“Price gains decelerated in every one of our 20 cities. These data show clearly that the growth rate of housing prices peaked in the spring of 2022 and has been declining ever since.”
Miami, Tampa, Charlotte reported highest year-over-year gains among 20 cities surveyed, while on a seasonally-adjusted basis, prices fell the most in August (MoM) in San Francisco (-4.3%), Seattle (-3.9%), San Diego (-2.8%), and Los Angeles (-2.3%).
The growth in the national home price index has now slowed for 5 straight months (now below 13% YoY for the first time since Feb 2021). The absolute drop in the growth rate of 2.62 percentage points is the largest ever…
Source: Bloomberg
Finally, given the unprecedented explosion in mortgage rates, just where will home prices end?
Source: Bloomberg
We would like to think Powell’s plan does not involve that kind of collapse… or maybe it is – since prices will have to fall considerably more to become affordable for the average American to follow his ‘dream’.
As Lazzara previously concluded, “as the Federal Reserve continues to move interest rates upward, mortgage financing has become more expensive, a process that continues to this day. Given the prospects for a more challenging macroeconomic environment, home prices may well continue to decelerate.”
And by way of example, Pulte Homes today, during their earnings conference call, said that it was expanding incentives, including price-cuts, as sales slump.
“Demand clearly slowed in the period as dramatically higher interest rates created financial and psychological hurdles for potential homebuyers,” Ryan Marshall, PulteGroup’s president and chief executive officer, said in the statement.
Additionally, contracts were canceled in 24% of deals in the period, up from 15% in the second quarter, the Atlanta-based builder said in a statement Tuesday. Purchase contracts fell 28% from a year earlier to 4,924, missing the average estimate of 5,715 from analysts surveyed by Bloomberg. And bear in mind that this is for Q3 (after the heavily lagged Case-Shiller Index) with Pulte warning in today’s call that “demand got even more challenging in October”.
Tyler Durden
Tue, 10/25/2022 – 09:06
