Home price growth slows in August at the fastest pace on record: Case-Shiller

Annual home price growth slowed in August at the fastest pace on record, according to the latest S&P CoreLogic Case-Shiller Indices report.

Home prices increased by 13% annually in August, down from 15.6% annually in July, Case-Shiller's National Home Price NSA index said. On a monthly basis, home prices fell by 1.1% from July. 

The 2.6% difference between August and July is the largest deceleration in the history of the index, according to Craig Lazzara, S&P Dow Jones Indices managing director.

"The forceful deceleration in U.S. housing prices that we noted a month ago continued in our report for August 2022," Lazzara said. "Price gains decelerated in every one of our 20 cities. These data show clearly that the growth rate of housing prices peaked in the spring of 2022 and has been declining ever since."

Annual home price gains were the strongest in Miami, Fla., Tampa, Fla., and Charlotte, N.C., which saw increases of 28.6%, 28% and 21.3%, respectively.  

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Home prices forecasted to keep slowing

The Federal Reserve raised rates by 75 basis points for the fourth time in a row at its November meeting, its sixth rate hike this year, and said it plans to keep raising rates to bring inflation in line with its 2% target. 

This monetary policy has triggered increased financing costs for homebuyers due to higher mortgage rates and could set the stage for further home price softening, according to Lazzara. 

"Given the continuing prospects for a challenging macroeconomic environment, home prices may well continue to decelerate," Lazzara said.

The housing market is expected to continue to reset to price levels that better align with what homebuyers can afford, Selma Hepp, CoreLogic's deputy chief economist, said. 

"Mortgage rates are now at the highest since the early 2000s and are eroding affordability, particularly in housing markets where price appreciation well exceeds the rate of local income growth," Hepp said in a statement. "As a result, housing markets will continue to readjust, resulting in a better balance between incomes and prices."

The speed at which home prices rebalance to reflect the current dynamics of the market will depend on the willingness of sellers to adjust prices, according to Brian Ward, CEO of Broadmark Realty Capital. 

"We won't see meaningful price changes and, therefore, the bid-ask spread between buyers and sellers, close until sellers begin to capitulate on the reality of this market, which may take several months," Ward said.

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Supply issues continue to challenge housing

While home prices are softening, Hepp said that limited housing remains a problem for the market. 

"The lack of supply of properties for sale continues to pose a critical challenge, one which is further complicated by existing homeowners who are reluctant to move because they have already locked in low rates," Hepp said. 

Housing inventory at the end of September was 1.25 million units, down 2.3% from August and 0.8% from the previous year, according to the National Association of Realtors (NAR). That is slightly more than three months' worth of available inventory to purchase. Six months of supply is associated with a balanced market, while lower supply levels often push prices up more quickly. 

"As we head into 2023, home prices will stay flat because builders/sellers aren't producing speculative houses until the current market conditions clear up," Armstead Jones, a strategic real estate adviser at Real Estate Bees, said. 

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