money Housing: Home price growth slowed by record amount in August
U.S. home price growth slowed by the largest amount on record in August, decelerating faster than economists' expectations and further cementing that the pandemic-era buying frenzy is largely over.
A national measure of prices in August rose 13% over the same month a year ago, the S&P CoreLogic Case-Shiller Index reported Tuesday. That’s down from July's 15.6% annual gain, marking a month-over-month decline of 2.6%, the largest monthly drop in the index's history. The previous record was in July.
The 20-city composite, which measures price growth in major metropolitan areas, posted a 13.1% annual again, down from 16% the month prior. The figures came in lower than the Bloomberg consensus estimate of 14% in annualized price growth.
“The forceful deceleration in U.S. housing prices that we noted a month ago continued in our report for August 2022,” Craig J. Lazzara, managing director at S&P DJI, said in news statement. “Further, 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."
The softening in home prices reflects the deepening affordability challenges potential homebuyers are facing. Limited supply levels, inflation concerns and record increase in mortgage rates this year are also pushing builders to offer price reductions to bolster sales.
The share of homes having their price reduced increased to 19.5% in September, Realtor.com reported, up from 19.4% in August and 11% a year ago. That’s now above 2017 and 2019 levels but still just shy of 21.2% seen in 2018.
“Price reductions are significant. The real estate markets are in a whole different place today,” George Ratiu, senior economist and manager of economic research at Realtor.com, told Yahoo Money. “For a lot of sellers, it's obvious that the main way to attract interest is somewhat of an old fashioned one – price discounts.”
On a month-over-month basis, the biggest declines were on the West Coast, with San Francisco (-4.3%), Seattle (-3.9%), and San Diego (-2.8%) leading the way.
Still, home prices remain well above year-ago levels in all 20 cities, with Miami (+28.6%) taking the lead over Tampa (+28.0%) followed by Charlotte (+21.3%), Dallas (+20.2%), and Atlanta (+20.1%).
That kind of year-over-year growth in prices remains too much for many buyers.
While the rate on the average 30-year mortgage dipped below 5% during the first week of August, adding some relief to price-struck buyers, it later jumped over half a percentage point during the month.
Rates have since skyrocketed – increasing by a full percentage point in September, and 3.83 points since the start of the year, “the biggest year-to-date increase in over 50 years,” said Freddie Mac Deputy Chief Economist Len Kiefer.
With rates currently hovering near 7%, the typical homebuyer is looking at a monthly mortgage payment of $2,300, Realtor.com data found, or about 44% of a household’s take-home pay.
The economic picture has cast many would-be buyers to the sidelines and has crushed builder sentiment to its lowest point in 20 years.
Builder confidence in October dropped 8 points to 38, or half the level it was six months ago, the National Association of Home Builders and Wells Fargo index reported last week. A number below 50 is considered negative.
It’s likely that this will impact home prices in the months to come.
“Sellers are less aggressive now, you see people being more reasonable in pricing their homes, but there’s still demand for houses,” Jason Sharon, owner and broker of Home Loans Inc., told Yahoo Money. “The problem is that we’re not creating enough houses to meet demand and with the way rates have acted recently… we’re seeing withdrawal from home-shopping.”
Gabriella is a personal finance reporter at Yahoo Money. Follow her on Twitter @__gabriellacruz.
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