Prospects for homebuyers increase as home prices continue to stall
US home prices continued their slow-motion climb in July, with the latest S&P Cotality Case-Shiller and FHFA data painting a picture of a market that has decisively lost its pandemic-era heat.
The S&P Cotality Case-Shiller National Home Price Index rose just 1.7% year-over-year, down from 1.9% in June, marking the sixth consecutive month of deceleration and one of the weakest annual increases in a decade.
The Federal Housing Finance Agency’s (FHFA) House Price Index told a similar story, with prices slipping 0.1% from June and up 2.3% from a year earlier.
“July’s results reinforce that the housing market has downshifted to a much slower gear,” said Nicholas Godec, head of fixed income tradables and commodities at S&P Dow Jones Indices. “It’s below the 2.7% rise in consumer prices over the same period. In other words, U.S. home values have essentially stagnated after inflation, marking the third straight month of real housing wealth decline for homeowners.”
Regional shake-up as affordability bites
The geographic hierarchy of US housing continued to shift. New York led the 20-city index with a 6.4% annual gain, followed by Chicago (6.2%) and Cleveland (4.5%).
Meanwhile, pandemic boomtowns lost steam. Tampa prices fell 2.8%, Phoenix dropped 0.9%, and San Francisco slid 1.9%.
“This represents a near-total inversion of the pandemic’s winners and losers – the regions that were once laggards are now leading, while the former high-flyers are lagging or even declining,” Godec said. “Markets now on top tend to be more affordable and supported by steady local economies, whereas the ones stumbling are grappling with stretched affordability and the comedown from speculative fervor.”
Fed’s next move in focus as market cools
The cooling in home prices comes as the Federal Reserve prepares for its next rate decision. With mortgage rates hovering near 7% through July, affordability remained a major hurdle, keeping many buyers on the sidelines and giving those who remained more negotiating power.
“The combination of high mortgage rates and stretched buyer affordability is limiting how far the spring/summer rally can go,” Godec said.
The FHFA’s data echoed the Case-Shiller findings, showing broad regional variation. The Middle Atlantic division posted the highest annual gain at 5.1%, while the Pacific division barely eked out a 0.2% increase.
Month-to-month, 15 of 20 major metros tracked by Case-Shiller saw price declines in July, underscoring the market’s fragility even during peak buying season.
With home price appreciation cooling and inventory rising, the Fed faces less pressure from housing-driven inflation. However, the market’s fragility—evident in stagnant transactions and buyer hesitancy—adds complexity to the central bank’s calculus.
Historically, softer home prices have sometimes prompted the Fed to ease rates, aiming to stimulate demand and support broader economic stability. But with inflation still above target and economic uncertainty lingering, the path forward remains uncertain.
The FHFA’s next report, due October 28, will provide further clarity on whether the market’s cooling trend is accelerating or stabilizing.
A new normal for housing?
Looking ahead, analysts expect the market to settle into a more measured pace, with price growth tracking closer to inflation and wage gains.
“The era of 15-20% annual home price jumps is behind us,” Godec said. “While that means homeowners aren’t gaining wealth at the breakneck pace of the recent past, it also signals a potentially healthier trajectory for housing in the long run.”
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