Skip to main content

Case-Shiller/FHFA House Prices (Apr.)

House price growth starts to slow, and will eventually turn negative

  • House price growth is finally showing signs of slowing, in line with measures of housing market activity which peaked at the start of the year. Soaring mortgage rates are shutting some buyers out of the market and forcing others to cut their budgets. While a tight market argues against a house price crash, a small fall to around -5% y/y by mid-2023 now looks likely.
  • Case-Shiller reported a slowdown in house price growth in April to 1.5% m/m, from 2.1% in March. That cut the annual growth rate from 20.6% to 20.4%. The FHFA reported an unchanged gain of 1.6% m/m, but the annual rise slowed for the second month in a row to 18.8%.
  • The slowdown in house price growth is to be expected given the rapid worsening in affordability caused by surging mortgage interest rates. Indeed, with the 30-year rate recently touching 6%, affordability is now worse than at the peak of the mid-2000s housing boom. While the housing market is still tight, that will cool house price growth as buyers are locked out or are forced to cut their budgets. (See Update.)
  • Indeed, worsening affordability has already led to a rapid turnaround in housing market activity. (See Update.) Existing home sales have dropped 17% since January, and higher interest rates are now cutting the average size of home purchase mortgages. Based on past form that points to a rapid slowdown in house price growth over the second half of the year. (See Chart 1.)
  • Admittedly, the inventory of homes for sale is close to record lows and there is limited chance of a jump in forced sales. That argues against a crash in house prices. But a small fall in prices now seems likely to ease affordability constraints. We expect house price growth to bottom out at around -5% y/y by mid-2023.

Chart 1: Case-Shiller House Price Growth & Average Size of Home Purchase Mortgage Application (% y/y)

chart001-306.png

Sources: Case-Shiller, MBA

Table 1: Case-Shiller National & FHFA House Prices (Seasonally-Adjusted)

Apr-21

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan-22

Feb

Mar

Apr

Case-Shiller (% m/m)

1.7

1.8

1.8

1.6

1.4

1.2

1.1

1.2

1.4

1.6

2.0

2.1

1.5

(% y/y)

15.0

16.9

18.8

19.8

20.0

19.7

19.1

18.8

18.9

19.3

20.1

20.6

20.4

FHFA (% m/m)

1.8

1.8

1.7

1.4

1.0

1.0

1.2

1.3

1.4

1.6

1.9

1.6

1.6

(% y/y)

16.1

18.3

19.1

19.3

18.6

17.9

17.6

17.8

17.9

18.3

19.3

19.1

18.8

Sources: Case-Shiller, FHFA


Matthew Pointon, Senior Property Economist, +1 646 934 6640, matthew.pointon@capitaleconomics.com