- by New Deal democrat
This morning’s repeat home sales reports from the FHFA and S&P Case Shiller were not good news for sellers - but very good news for future consumer inflation readings.
On a seasonally adjusted basis, in the three month average through May, the Case-Shiller national index (light blue in the graphs below) declined -0.3%, while the FHFA purchase index declined -0.2%. In the case of the FHFA index, this was the second decline in a row; in the Case-Shiller Index, the third. This is on par with the declines we last saw in the summer of 2023 (note: as per usual, FRED hasn’t updated the FHFA information yet):
Put another way, there has been actual *de*flation in the house price indexes since February, by -0.5% in the FHFA Index and -1.0% in the Case Shiller Index.
On a YoY basis, price gains in both indexes not only continued to decelerate, at 2.7% for the Case Shiller index, and 3.0% for the FHFA index; but these were the lowest YoY% increases since 2012 for both indexes excluding 6 months in 2023 for the Case Shiller index:
As I indicated at the outset, while this may be bad news for home sellers, it is excellent news for the shelter component of CPI in the future, because house prices lead the measure of shelter inflation in the CPI, specifically Owners Equivalent Rent by 12-18 months. To wit, here is the same graph as above (/2.5 for scale) plus Owners’ Equivalent Rent from the CPI YoY (red):
In the past several months, I wrote that the last time the Case-Shiller and FHFA Indexes were in this range YoY (2019), Owners Equivalent rent gradually declined in the 12-24 months thereafter to the +2% YoY level (courtesy in part of COVID). With this month’s decline, we are past that: the most apposite period is the first half of the 1990s, when CPI for owners’ equivalent rent was in the 2.5%-3.5% range:
Before I conclude, let me also highlight that last Thursday the experimental New and All Tenant Rent Indexes were updated for Q2 by the BLS, and it showed new rents falling off a cliff, with a YoY likely range of between -1.5% and -17.1, and a median of -9.3%. Here’s a graph of this metric compared with the CPI for rents (advanced 9 months):
The range for *all* rents was between 2.4% and 3.2%, with a median of 2.8% YoY. This compares with 3.8% for rents in the latest CPI report.
While this is a huge range of error, the trend it forecasts is unmistakeable.
Similarly, the latest “National Rent Report” from Apartment List from the end of June continued to show YoY decreases, specifically of -0.7%. I won’t bother with the graph since it hasn’t been updated yet for this month.
Both last Thrusday’s new rents report and this morning’s repeat home sales reports are excellent news on the inflation front. If it weren’t for tariffs, this would forecast almost the complete obliteration of the post-pandemic consumer inflation spike.
