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Is home-price growth finally cooling?

Home-price growth in the US started to slow in April, according to one widely-watched measure.

The S&P CoreLogic Case-Shiller nationwide index showed prices climbed 20.4%, down from the 20.6% gain in March.

Mortgage rates have nearly doubled since the end of 2021. The run-up in rates, combined with high prices, are squeezing potential buyers and starting to slow housing markets in some of the most popular pandemic boomtowns. Still, the small number of homes for sale is keeping values elevated, and Lazzara noted that growth rates are strong by historical standards.

A Case-Shiller measure of prices in 20 US cities climbed 21.2% in April following a 21.1% gain in March, according to the index. In recent months, price growth had accelerated broadly across the 20 cities in the index. But April’s data showed that only nine cities continued to see price gains quicken — including Los Angeles-Orange County, up 23%.

“Mortgage financing has become more expensive as the Federal Reserve ratchets up interest rates, a process that had only just begun when April data were gathered,” Craig Lazzara, a managing director at S&P Dow Jones Indices, said in a statement. “A more challenging macroeconomic environment may not support extraordinary home price growth for much longer.”

By the way, April is a long time ago. The stock market’s S&P 500-stock index was growing at a 6% year-over-year pace that month. It’s now down 7.7% from June 2021.

Broad chill

The housing market slowdown is having ripple effects across the industry. Mortgage lenders are forecasting a slump in business and brokerages including Compass Inc. and Redfin Corp. are laying off workers.

The inventory of houses for sale was tight during the pandemic boom as homes quickly flew off the market. While more owners are listing properties, there were still fewer homes on the market in May compared with a year ago. Tight supply can contribute to higher prices by pushing buyers into bidding wars.

The latest data represents a snapshot of a housing market in transition, even before the Federal Reserve tightened the bolts on monetary policy — including its largest interest rate hike in almost three decades — throwing cool water on the housing market in the process. Mortgage rates, which respond to market dynamics and tend to track the movements in 10-year US Treasury bonds, have also ratcheted up even further, with the average 30-year fixed rate mortgage hitting 5.81% last week.

“Back in April, things were still quite strong,” said Laila Assanie, senior business economist for the Federal Reserve Bank of Dallas. “Home sales were robust, prices were rising quite rapidly, demand was strong, and many of the builders were seeing their homes sell for more than the asking price.”

Those rising mortgage rates have already had a huge impact. “The [housing] market has cooled down, and it’s normalizing,” Assanie said.

Further cooling ahead

April’s indexes suggest further deceleration is coming, Selma Hepp, CoreLogic’s deputy chief economist said in a statement.

“Signs of a tipping point toward a greater balance between buyers and sellers are increasing, albeit only compared to some of the most competitive conditions since the early 2000s,” she said.

Sellers are having to work a little harder to close the deal, and investors — who had been buying properties in bulk — appear to be pulling out of the market, she said.

“We don’t expect a large decline in home prices across the US; it’s likely to remain fairly stable,” Leo Feler, senior economist at the UCLA Anderson School of Management, said in an interview with CNN Business.

There are certain markets — “boom and bust” areas like Las Vegas, Phoenix, and Jacksonville and Tampa in Florida — where prices may see deeper declines, he said. Tuesday’s report showed that Tampa, Miami and Phoenix reported the highest annual increases of 35.8%, 33.3% and 31.3%, respectively, among the index’s 20 cities.

“What seems to have driven some of these home price increases is these are places that have had a big influx of population during these past two years,” he said.

Separate data released Monday by the National Association of Realtors showed that pending home sales also surged in May. The pending home sales index, which measures signed contracts on existing homes for sale, saw an uptick of 0.7% in May from April. However, sales were down 13.6% since last year.

The housing market “is clearly undergoing a transition,” said Lawrence Yun, the National Association of Realtors’ chief economist. “Contract signings are down sizably from a year ago because of much higher mortgage rates.”

Bloomberg, CNN and the Southern California News Group’s Jonathan Lansner contributed to this report.

Source: Orange County Register

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