- by New Deal democrat
For the past year, my view has been that the housing market is in recessionary territory, although that has not translated to the economy as a whole. As per usual, home sales lead house prices; and that trend continued with the Case Shiller and FHFA repeat sales house price indexes through November, released this morning.
On a seasonally adjusted monthly basis, both indices rose 0.4%. This is the fourth straight seasonally adjusted increase, after 4-5 months of seasonally adjusted declines earlier in 2025 [Note: as per usual, FRED has not updated this month’s FHFA readings yet]:
So it is safe to say that the downtrend in both prices indices has reversed.
But as indicated by the YoY% changes, the reversal has not in any way accelerated price increases. Rather, the November numbers for the Case Shiller Index were equivalent to those 12 months ago, while for the FHFA index, the increase was lower than last year. In other words, the YoY% increase in the Case Shiller index has leveled out at 1.4%, while that for the FHFA Index has declined to 1.7%, as shown in the last 5 years of YoY% changes linked to below:
More significantly, the long term historical view shows that the YoY gain in the FHFA Index is the lowest in the past 35 years outside of the 2007-11 housing bust and 2 months in 1993:
But viewed in terms of affordability, existing home prices still have a long way to go. The graph linked to below shows both repeat home prices indexes vs. average nonsupervisory hourly earnings, as well as the median price for new houses, all normed to 100 as of the peak of the house prices surge in June 2022:
While hourly earnings have increased slightly more than existing home prices since then, as measured by the two repeat home price indexes, and the median price of new homes has trended *downward* ever since, repeat home sales prices have still increased over 20% more than average wages since before the recession, and median new home prices have increased about 10% since then even as of the latest report.
So if we continue to see a very gradual rebalancing of the housing market between new and existing home prices, both remain much less affordable than before the pandemic, even leaving the increase in mortgage rates aside.
I anticipate that the recessionary trend in new home construction will continue so long as affordability is only being addressed at a glacial pace. We simply need much more new and existing home inventory - i.e., a big increase in supply - to balance out the demographics-driven demand.
