The Turn Has Finally Happened

Yesterday, the average rate on a 30-year fixed rate mortgage hit 7.08% before receding slightly to 6.82% today. This is highest rate in the last 20 years and over twice the rate at the end of 2021. One day prior, on September 26th, the American Enterprise Institute (AEI) Housing Center, announced that month-over-month home prices nationwide fell 1.6% in from July to August. Here are the Key takeaways from the August report, provided by AEI:

  • National Home Price Appreciation (HPA) for August 2022 averaged 11.3% , up from 17.0% a month ago and 16.0% a year ago.

  • Historically, HPA in the low price tier has outpaced HPA in the upper price tiers.

  • HPA varied significantly among the 50 largest metros. It ranged from 2.6% in San Jose to 26.6% in Cape Coral.

  • National m-o-m HPA in July was -1.6%, and it is expected to decline in September and October based on the Optimal Blue data.

  • The West and the high price tier are the first to show signs of a cool down.

  • Months’ supply continues to be extremely tight across the nation and all price tiers. Months’ supply stood at 1.9 months in August 2022, down from 2.7 months in August 2019, but up from 1.5 months in July 2022, and 0.7 months in April 2022.

  • Housing inventory in July increased by more than expected due to seasonal changes alone. Though a good sign in terms of reigning in unsustainable HPA, it continued to run well below previous years’ levels.

You can view the full report here.

Ed Pinto, the AEI’s director said,

“The turn has finally happened, based on actual closings. This is the beginning of a trend that should send prices down between 8% and 10% by next August.”

While Pinto believes that low inventory and the strong labor market combined with relatively high average equity will prevent the current housing correction from becoming as dire as the 2008 crash, a 10% pullback over the next year alone would wipe out all appreciation gained in the first five months of 2022, when national home prices rose 9.5%.

 

In many regional markets, the August decrease in home prices nationwide represented the third or fourth consecutive month of month-over month price declines. The same was true for Weld County, with August posting the third consecutive month of decline in median sales price:

  • June: -0.2%

  • July: -0.9%

  • August: -1.1%

 

While the August AEI report indicates the largest price declines coming from the West and West Coast, others are starting to see data that the price declines are both steeper and more widespread than previously thought.

 

Yesterday, the Case-Shiller U.S. National Home Price Index was updated with July figures, with a reading for July that 0.24% below it’s June reading. This marks the first month-over-month decline in home prices since 2012.

 

While this is a small drop, it confirms what many have come to realize of late: the trajectory is clearly shifting. What’s more, although the June to July decline is small, the story it tells is actually much larger because the Case-Shiller Index is a three-month lagged average. This means that the drop in July was large enough to wipe out all of the gains in May and June.

 

Given the continued trend we are seeing in Weld County of increasing inventory and cratering closed sales, it’s becoming increasingly clear that the struggle to avoid a retraction in prices may be in vain.

Jamison R. Walsh, REALTOR®