Hard freeze in the housing market: The Federal Reserve succeeded in freezing housing prices in the United States for one year

Hard freeze in the housing market

In June 2022, Fed Chairman Jerome Powell told reporters that homebuyers need a “reset” — and that the Fed’s rate hike campaign will get it done.

It’s easy to see why Powell is worried: At the height of the housing boom epidemic, in the spring of 2022, the annual growth rate of house prices in the United States reached 20.8%. In total, US home prices according to the Case-Shiller National Home Price Index increased by 43.3% between March 2020 and June 2022.

“When I say reset, I’m not looking at a specific set of data,” Powell told reporters in September. “What I’m really saying is we had a time in an overheated housing market across the country where famous first-buyer homes were selling 10% higher than demand even before seeing a home. That sort of thing. So there was a huge supply-demand imbalance. Houses were going up at an unsustainable rapid level. So the slowdown in housing prices that we’re seeing should help bring prices closer to rents and other housing market fundamentals.”

Fast forward to Tuesday, and we just learned that US home prices, as tracked by Case-Shiller, fell 0.5% year over year between May 2022 and May 2023. What does that tell us? Well, not only did high interest rates halt the housing epidemic, but it also froze national housing prices for an entire year.

For homebuyers, it provided a cooling to the growth of national home prices some recovering from the stiff competition and price hikes they faced during the market’s peak. This period of recession has allowed some buyers to explore their options more thoroughly and make more in-depth choices.

While home prices in the United States fell by 0.5% year-on-year, on a monthly basis, prices increased during the first half of 2023.

According to the Case-Shiller Index, home prices in the United States rose 1.2% between April 2023 and May 2023. This follows a 1.3% rise between March 2023 and April 2023.

Keep in mind that these monthly increases occur during the US housing market’s strong seasonal portion of the calendar year. As data begins to emerge for a seasonally softer second half of the year, monthly declines may emerge again.

Speaking to CNBC last week, economist Robert Shiller suggested this, saying, “Part of what’s going on in home price increases is only seasonal, it’s summer and it usually goes up in the summer.”

Keep in mind that the Case-Shiller National Home Price Index measures the frequency of sales of single-family homes across the country.

And while home prices in the United States are down 0.5% year over year, some markets are falling much more — or not at all. Of the 20 major housing markets that Case-Shiller is breaking out in individually, 15 are down year-over-year. This includes places like Seattle (-11.25% yoy), San Francisco (-11.05%), Las Vegas (-7.76%), Phoenix (-7.62%), and Portland, Oregon (-5.05%).

This decline in housing prices – which is concentrated in the West – should not come as a surprise. After all, Powell warned us that getting the housing market back into “equilibrium” would mean that “the housing market has to go through a correction to get back to that place.”

In the chart below:

Monthly (monthly) = The house price change between April 2023 and May 2023

YTD (YTD) = House price change between December 2022 and May 2023

On an annual basis (YoY) = the house price change between May 2022 and May 2023

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Do you want to stay current on the US housing market? Follow me on Twitter at @employee.

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