And just like that, the housing boom is over.
Pressured by higher mortgage rates induced by the Federal Reserve, U.S. home prices fell back to earth in June, according to two closely followed reports on home prices released on Tuesday.
Home prices had been appreciating at double-digit rates for two years, but sales prices barely rose in June compared with May, according to the Federal Housing Finance Agency’s monthly index. Nominal prices fell in five of nine Census divisions, including New England, the Midwest and the West. The deceleration was rapid nationally: Prices had risen at a 21% annual rate as recently as April, but slowed to just a 1% annualized rise in June in current-dollar terms.
“ The collapse of the housing market is likely to drive up rents in the short run, as would-be buyers are forced to compete for scarce rental units. ”
The June deceleration wasn’t quite as dramatic in the parallel S&P Case-Shiller home price index, which slipped from a 22% annual increase in April to a 4% annualized pace in May.
The gap between the two indexes is likely due to the differences in how they’re computed. The FHFA index for June includes sales prices for June, but the Case-Shiller index is reported on a three-month moving average, which means June’s figure includes sales prices from April and May, when the sales market was still robust.
Abrupt halt in price increases
Home-price gains had been outpacing overall consumer inflation for years , but that ended abruptly in June, with very low home price appreciation paired with a very high consumer price index (which increased 17.1% annualized in June). July’s CPI was unchanged.
Relative to the other things that consumers buy — such as food, utilities and cars — real home prices fell at a 17.2% annual rate in June, the sharpest drop in the FHFA index in real terms since March 2011. The inflation-adjusted S&P Case-Shiller index fell at an 8% annual rate in June, the biggest drop since November 2011.
The decline in inflation-adjusted home prices is good news for consumers who’ve been battered by the worst inflation in 40 years, much of it driven by the rise in shelter costs. (The drop may not be so good for home owners who are anxious to sell.)
However, the relief in the CPI won’t be instant. Inflation in shelter costs is measured by rents, not by home sales prices. In general, the shelter component in the CPI continues to rise for as much as 18 months after the peak in home sales prices. Shelter is by far the largest component in the CPI, accounting for about one-third of consumer purchases.
In fact, the collapse of the housing market is likely to drive up rents in the short run, as would-be buyers are forced to compete for scarce rental units. In the long run, the only solution for higher rents is to supply more housing units, but the Fed’s increases in interest rates
Rex Nutting is a columnist for 江湖电竞最新版比赛(江湖电竞投注app网站) who has written about the economy for more than 25 years.