The latest record surge in home prices is misleading - buyers are actually getting some relief
Nam Y. Huh/AP Photo
- US home prices rose 19.8% in August, S&P Dow Jones Indices said Tuesday, matching July's pace.
- It was the first time in five months that year-over-year inflation failed to hit a record high.
- Month-over-month price growth slowed from July's pace, signaling the housing market kept cooling off into the fall.
Homebuyers have a glimmer of hope. Although US prices are still soaring at record pace, the worst of the pandemic-era price surge looks to be over.
Prices for US homes rose 19.8% year-over-year in August, according to the S&P CoreLogic Case-Shiller national home-price index. That matches the record growth seen in July, but for the first time in five months, the pace of inflation was flat and didn't rise to a fresh record.
Put simply, home-price growth plateaued in August. After facing faster and faster home inflation for most of the year, prospective buyers got a clear sign on Tuesday that the worst is past.
Similar trends emerged in S&P Dow Jones Indices' city-focused indexes. The company's 20-City Composite rose 19.7% from August 2020 to August 2021, slowing from the 20% jump seen in July. That also landed below the median forecast of a 20% jump from economists surveyed by Bloomberg.
The 10-City Composite showed an even larger slowdown. Prices rose 18.6% year-over-year, down from July's 19.2% leap.
The national index's one-month gain offered more promising news for buyers. The measure rose 1.2% through August, according to the report - the smallest one-month increase since February and the fourth straight month of slowing price growth.
CoreLogic's own housing-price metric told a similar story earlier in October. Year-over-year price growth hit a record 18.1% in August, according to the price index. Yet prices rose just 1.3% through the month, slowing sharply from the 1.8% gain seen in July.
The housing market is on the cooldown
The Tuesday report signals the recent slowdown in monthly price growth is more likely a lasting trend than a one-time blip. Housing experts forecasted as much in July, telling Insider they expected price growth to start slowing through the end of 2021 and more considerably in 2022.
The start of that long cooldown is welcome news for prospective buyers. The housing market has been white-hot through much of the pandemic, leaving many struggling to keep up. Record-low mortgage rates and a wave of pandemic-era movers sparked the price rally in 2020 and dragged US home inventory to all-time lows.
The nationwide home shortage kept prices soaring through 2021. Buyers furiously pushed prices higher as they fought over what few homes were left. Those bidding wars lasted into the summer before inventory started to rebound and the pace of home sales slowed.
Still, the market is far from normal. Year-over-year price growth hovered between 3% and 4% before the pandemic. Even though home inflation has stalled, it's still roughly five times higher than the pre-crisis norm.
And while economists see price growth cooling in 2022, some experts expect only minor improvement. Goldman Sachs expects year-over-year price growth to slow to 16% next year, marking a mild downshift from the 20% gains seen in 2021.
The barriers to a fully normalized market are twofold, according to the bank. Builders will struggle to shore up home supply as the labor shortage and supply bottlenecks curbs homebuilding, the team led by Jan Hatzius said. At the same time, millennials in their peak homebuying years are set to keep demand at historic highs.
Prices won't rise as fast as they did in 2021, but they'll still go up, the economists said.
"Of all the shortages afflicting the US economy, the housing shortage might last the longest," they added. "While the supply of homes for sale has increased modestly since the spring, it remains well below pre-pandemic levels and the outlook offers no quick fixes for the shortage."