Will house prices decline further later this year?

In November 2021, I wrote Inventory will Tell the Tale and recounted how changes in housing inventory had helped me forecast the housing market at several key points.

I believe inventory will tell the tale. That is why I watch inventory closely.

So, based on the low level of inventory in March 2022, I wrote Housing: Don't Compare the Current Housing Boom to the Bubble and Bust, and I expected a decline in real house prices (inflation adjusted), and little decline in nominal prices.

I noted we could be fairly confident that we wouldn’t see cascading nominal price declines like during the housing bust since there would be few distressed sales.

Then, as inventory picked up sharply in 2022, I adjusted my outlook in October 2022 and wrote House Prices: 7 Years in Purgatory. I noted that a 10% decline in nominal prices “now seemed likely”.

Here is a graph of active listing from Realtor.com through June. Note the surge in inventory in mid-2022 as mortgage rates increased.

However, the inventory surge in 2022 was somewhat of a head fake! Some potential sellers quickly listed their homes, probably remembering what happened with house prices in the 2006 to 2011 period, but that surge ended pretty quickly.

Here is a similar graph from Altos Research through this week.

The red line is for 2023.  The black line is for 2019.  Inventory picked up sharply in 2022 as mortgage rates increased. This year there was little seasonal increase in inventory, and inventory is now down year-over-year.

So far, the seasonally adjusted Case-Shiller National Index has seen a maximum nominal decline of 2.9% from the peak, and a 4.6% decline in real prices adjusted using CPI ex-shelter.

And house prices have increased a little recently. The MoM increase in the seasonally adjusted Case-Shiller National Index was at 0.53% in April. This was the third consecutive MoM increase following seven straight MoM decreases, and other indexes suggest further increases in May and June.

As I noted in House Price Battle Royale: Low Inventory vs Affordability

Inventory is pushing up prices, and affordability (the change in monthly payments) is pushing down prices. And it appears this battle will continue … there is no relief in sight for inventory or for mortgage rates.

The question now is:

Will house prices decline further later this year?