Home Prices on a Slow Descent Towards Sustainability

The post-pandemic surge in home prices has started to reverse, with the average forecast predicting that the annual pace of home price appreciation would fall back towards historic norms by mid-2022. And as rates spiked and sales contracted last year, the predictions have come to fruition.

The FHFA and S&P Case-Shiller publish home price indices (HPIs)

each month, considered the most official record of home price changes. Although the data is a bit delayed, the latest figures for November show a slight decline in home prices. Case Shiller’s index, which focuses on 20 major metro areas and tends to be more volatile, showed a 0.5% decline in November, which was actually less of a drop than forecast. FHFA’s monthly numbers were down even less (-0.1%) after holding steady in October.

The long-term chart of year-over-year change is even more optimistic, showing that home price gains remain higher than the past 16 years according to FHFA and among the highest levels of the past decade according to Case Shiller. However, it is worth noting that the chart will continue to decline in the coming months, and it will be interesting to see where it finally stops.

The question remains,

would it be a good thing for prices to go up by 6%+ each year in a world where incomes and other prices are not rising as quickly? The bottom line is that prices have been gently descending into a territory that is more sustainable than it was previously. The descent has been largely as expected, if not slightly gentler.

In conclusion,

while there has been a slight decline in home prices, the long-term outlook remains positive, and the descent towards sustainability is a welcome change. The real estate market continues to evolve, and it will be interesting to see how it develops in the coming months.