Lawler: Are “National” Home Prices Already Falling?

A short but important note from housing economist Tom Lawler (and related to my two previous posts Will House Prices Decline Nationally? and The Sharp Slowdown in Year-over-year House Price Growth)

The sharp contraction in housing demand over the past several months triggered in large part by the unprecedented surge in mortgage rates this year has led most housing analysts to reduce substantially their projections for home price appreciation both for the remainder of this year and for next year as well.  Few, however, project declines in home prices for the remainder of this year, though several (but not yet most) now forecast modest home price declines in 2023.

However, some recent home price reports actually suggest that “national” home prices may already have started to decline, and they certainly show that home prices in some areas of the country have already begun to fall.

One of the most widely followed HPIs – the S&P/Case-Shiller “national” HPI – increased by just 0.3% on a seasonally adjusted basis in “June,” a shocking deceleration from the 1.6% increase in “May.”  I say shocking because the SPCS HPI is basically a three-month moving average measure, and such sharp growth changes in three-month moving average measures of home prices are exceedingly rare, and suggest the possibility of virtually no growth in a June HPI using only June transactions. (The modest June increase in the SPCS HPI was way below that projected by Zillow in the latter part of July, BTW.)

And speaking of Zillow, the “raw” (unsmoothed) Zillow Home Value Index (ZHVI) for the country declined by 0.1% in July, the first monthly decline since the early part of 2012.  Of the top 100 metro areas, 22 experienced a monthly drop in their ZHVI in July.  There is no discernable seasonal pattern in the ZHVI.

The FHFA recently reported that its national monthly purchase-only HPI increased by just 0.08% on a seasonally adjusted basis in June, a sharp deceleration from the 1.28% increase in May.  The FHFA HPI declined on the month in five of the nine Census Regions.

And most recently, CoreLogic reported that its “national” HPI declined by 0.3% from June to July.  CoreLogic’s HPI is a weighted three month moving average, and is not seasonally adjusted.  The company did, however, note that seasonal declines in its HPI from June to July are not typical.

Given the lagged nature of some of these HPIs – and considering that closed transactions typically represent contract activity in the previous one or two months – it seems quite possible that home prices contemporaneously measured may in fact have already reached a peak for the year.  Indeed, my own view is that a “base case” projection would be that all of these HPIs will show a December level that is below the June level.

I’ll have much more on this topic later.

Note: This was from housing economist Tom Lawler. emphasis added