- by New Deal democrat
Last week YoY existing home prices increased only 0.2%. Since those were not seasonally adjusted, it was apparent that the actual peak in such prices was about early this spring. Yesterday we saw that new home prices continued to deflate. This morning’s repeat home sales reports from the FHFA and S&P Case Shiller are the final confirmation that the housing market is in deflation.
On a seasonally adjusted basis, in the three month average through June, the Case-Shiller national index (light blue in the graphs below) declined -0.3%, while the FHFA purchase index declined -0.2%, matching their declines from the previous report. The FHFA index (blue in the graphs below) has now been declining for three straight months, and the Case-Shiller Index (gray) for four. the third. (note: as per usual, FRED hasn’t updated the FHFA information yet):
In other words, there has been actual *de*flation in the house price indexes since February, by -0.7% in the FHFA Index and -1.2% in the Case Shiller Index:
On a YoY basis, price gains in both indexes not only continued to decelerate, at 1.9% for the Case Shiller index, and 2.7% for the FHFA index; but these were the lowest YoY% increases since 2012 for both indexes excluding 5 months in 2023 for the Case Shiller index:
Because house prices lead the shelter component of the CPI by 12 - 18 months, this strongly indicates that they will continue to decelerate over that period. Here is the same graph as above (/2.5 for scale) plus Owners’ Equivalent Rent from the CPI YoY (red):
The last time the Case-Shiller and FHFA Indexes were in this range, excluding the Great Recession, was in the 1990s, during which time Owners Equivalent rent was in the 2.5%-3.5% range (vs. 4.1% as of the most recent CPI report).
Similarly, although I won’t bother with the graph, the latest “National Rent Report” from Apartment List from the end of July showed precisely zero YoY rent increases.
As of now, all phases of the housing market are either at or near their low points (sales, permits, starts), or declining (prices, construction, employment, and new spec units for sale). After a brief spurt earlier this year, for the past few months industrial production has also been flat. Before 2000, when both goods producing sectors of the US economy were flat to negative, the economy contracted promptly. On Friday, we will find out if consumer purchases of goods are flashing a warning (or not) as well.
