It finally happens. After soaring 40% from pre-pandemic levels in the biggest boom in decades, house prices peaked in June and started falling in July. That’s the stunning and sudden change revealed in a new dataset just released by the American Enterprise Institute’s Housing Center, one of the leading sources of detailed, city-by-city numbers on everything concerns housing, from appraisal to inventories and mortgages. origins. “The market has just reached a turning point,” says Ed Pinto, Director of AEI Housing Center. “Prices will continue to decline nationally from August through December. It is likely that we will see declines in about four out of five metros in some of the coming months.”
Until now, the AEI had measured prices mainly on a year-over-year format. And in that regard, housing still looked strong in June. That month, the AEI found that the value of the average home increased by 15% from June 2021. But its data also showed over the 12-month period, “home price appreciation or HPA, was rapidly slowing down substantially. from a peak of 17.5% in April. The question that the withdrawal posed to American owners: what is going on? at present, week by week or month by month? Is it possible that in my city, in Atlanta, Phoenix or Raleigh, the prices start at decline?
New data from the AEI answers this question. The metric displays month-to-month price changes. Therefore, the numbers provide a close-up view of exactly when the models are turning, by how much, and what the movements foreshadow. They are a guide to reading the pulse of the market. AEI figures are based on actual closings for the month, as reported in public records. Pinto deploys a methodology that compares sales of homes of similar quality, removing distortions due to changes in the sales “mix” – for example, a misleading increase in average prices as a higher share of expensive homes sell in June than ‘in May.
An impressive number of markets are already posting declines
The AEI calculated the figures for the 50 most active housing markets in the country. The AEI’s chart, “House Price Appreciation (Month-over-Month)”, shows month-over-month changes from the start of 2019 through June of this year. Let’s start with national data. The overall market has been in such a relentless rampage, for so long, that prices have only retreated twice in that time, and each time by just 0.1%. As recently as January, America’s monthly HPA was 2.6%, slipping in May to a still-robust 1.1%. But in June, appreciation hit a virtual freefall, shrinking to just 0.2%.
Behind this nationwide slowdown are stunning reversals in various cities that were thriving just a few months ago. In June 2021, only four metros posted price declines from May and last year the only loser from May to June was Louisville with a miniscule -0.1%. In April, not one of the fifty metros suffered a drop compared to March. But in June, no less than 21 localities suffered drops in their May prices, some of them significant. In general, the steepest falls have come in expensive west coast markets, as well as western metros which have attracted legions of buyers following the exodus from California. Eleven of the hardest hit addresses fall into this category. The biggest loser was San Francisco with -3.8%, followed by San Jose (-3.2%). Other Western cities with steep declines include Seattle (-1.8%), Los Angeles (-1.5%), Portland (-1.3%), Denver (-0.9%) and Phoenix (- 0.6%). Almost all of these metros tipped as recently as February, with San Francisco up 2.8% from January, San Jose up 3.9% and Seattle up 3.5%.
“The clearest trend is the retreat of these West Coast cities and those influenced by the California madness,” Pinto says. In these places, giant price increases over the past two years from already high levels have so diminished affordability that rapidly shrinking ranks of buyers are hammering values despite historically low volumes of homes for sale. sale. From the fourth quarter of 2019 to the first quarter of this year, prices rose from $1.2 million to $1.6 million in San Joe, from $575,000 to $819,000 in Seattle, from $466 to $623,000 in Denver and from $340,000 to $516,000 in Phoenix. The only Western markets that still showed strength were Las Vegas, a cooling location but still managing a 0.2% increase from May, and Boise, where prices climbed by 1.8%, maintaining a record of consistent month-over-month increases. Boise continues to thrive as a favorite destination for Californian work-from-home refugees who can sell a house in, say, San Jose, get a much bigger abode at half the price of their adopted city, and still bank hundreds of thousands of dollars.
In recent months, the hottest markets have clustered in the sunshine state. Cape Coral, which had year-over-year increases of around 30%, is rapidly declining (you can read my recent article on the Cape Coral market here). Its 2.8% gain from April to May reversed to negative 1.0% in June. Tampa, North Port, Orlando, Jacksonville and Miami are all down from February increases, but still advanced between 0.2% and 1.1%.
By contrast, a number of older Metros that haven’t seen big price increases have shown remarkable resilience, for a simple reason: many remain relatively cheap. St. Louis, Nashville, Boston, Providence, Philadelphia, Kansas City, Columbus and New York all ranked in the top ten for earnings from May through June. Tied for first place with Boise the Big Apple, which saw a 1.8% month-over-month increase and is one of the few stalwarts to appear on an upward trajectory.
The June downdraft radically transforms the outlook for this year and 2023
Pinto also gets a good look at where prices are headed by studying Optimal Blue’s “rate lock” data. These figures reflect contract prices for sales that will close in approximately 90 days. For Pinto, the rate lock trend indicates lower prices, nationally, from July to December 2022. “We expect the national month-on-month HPA to turn negative in July for the first times for years,” he said. “From there, prices are expected to fall 3% to 5% from June levels by the end of the year. These total increases will accumulate gradually over the seven months from June to December. By the end of the year, Pinto expects home prices to still be 4% to 6% higher than in December 2021, but will likely remain on a downward trajectory.
Pinto predicts that if overall prices decline by around 4% by the end of the year, many more metros than the 21 that were negative in June will soon be showing prices down month-to-month. ‘other. “I wouldn’t be surprised if some months we see 40 cities showing declines,” he says.
So where does Pinto see values heading in 2023? It would appear that if prices fall in December, they will continue to fall for most of 2023. But that’s not necessarily the most likely scenario, Pinto says. “We’ve seen mortgage rates come down over the past few weeks from 6% to around 5.5%,” Pinto says. “If rates continue to fall, that would give a boost to appreciation.” He points out that even though stocks are increasing, stocks remain extremely thin. “We’re still about a month away from supply at the current level of demand,” he says. “To get prices down, we would need seven ‘months of supply’, and that could still be a long way off.” For Pinto, it is quite possible that a combination of stable or falling rates and limited volumes of homes for sale could support gains of 4% to 6% next year.
Still, Pinto says predicting the future of housing has never been harder. “There are so many factors pushing and pulling in different directions,” he says. “My crystal ball is getting foggier.” AEI’s new monthly figures allow owners to follow the evolution of the market, not only over long periods, but as it evolves. People are very worried about what today’s tumultuous times mean for the future of their greatest asset. They want to see if the value of their colonial ranch has gone up or down in the last 30 days. Now they can. AEI numbers don’t give owners a crystal ball. But following the new data from the AEI will allow you to keep your thumb on the market pulse of the market that, for most Americans, matters far more than any other.
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