The bull run in the housing sector is over in the US. Home prices fell, a first in the decade of the US housing industry.
In July, in 20 cities, the national measure of price fell by 0.44 %. This was the first drop since march 2012, according to the S&P CoreLogic Case-Shriller index. The last time the real estate industry crashed in 2012, it followed up with ten years of price gains, including two years of frantic pandemic buying.
Federal Reserve, however, spoiled the party by increasing interest rates to curb inflation. This year mortgage interest rates have doubled, forcing many buyers to withdraw and causing sales to crash.
The home values are now going south, with the biggest month-on-month decline seen in July. San Francisco saw -3.6% growth followed by Seattle at -2.5% and San Diego at -2 %.
The Case -shriller national index jumped in July, recording a 15.8% growth compared to the previous year. This was a small gain recorded since April 2021. After achieving 18.1 % growth in June, the slowdown was one of the largest climbdowns in the index’s history.
In August, the sale of new homes in the US increased unexpectedly, as shown by government data. This signaled that pent-up demand for homes is still there. Since March, the pace was the strongest for new home sales. This perhaps reflected buyers rushing to buy homes before borrowing increased and taking advantage of some builders selling at a discount. New home sales increased in all places, including the 29.4% jump in the South, which witnessed a firm pace this year.
The maximum decline in the home process was in the most expensive locations like the west coast. Buyers were constrained earlier also with the high price even when the rates were low early this year.
The plunge looks steep compared to the pandemic during those two years. A frenzy with a shortage of listings resulted in multiple offers causing buyers to bid higher for the same property.
Now the listings are holding longer because the demand has collapsed and added to the inventory. The prices can be helped to keep elevated if fewer homes come to the market.
Homeowners are staying put and not moving out, as buying a new house will mean taking a mortgage at higher rates. According to a report from Zillow Group, the new listings slid by 23% in August compared to a year earlier.
The Federal Reserve rates continue to increase, and home prices will continue to decline with a more challenging macroeconomic environment.
