Home Price Growth Has Turned the Corner

With buyers reaching their maximum capacity for affordability and becoming fatigued through the competitive home-sale process, it’s not surprising that the latest home-price gains data has slowed, according to the recent S&P CoreLogic Case-Shiller Index.

“Overall, we are seeing home prices start to normalize after record growth and expect the trend to continue at a more stable growth rate of 2% to 5% per year over the next few years based on industry forecasts,” Denise Mitchell, MBA, Realtor Century 21 Discovery, tells GlobeSt.com.

“This more balanced market will help us to deliver a better experience for buyers while sellers are still enjoying strong prices.”

The S&P CoreLogic Case-Shiller Index indicated that home price growth remained strong in August, clocking in at 19.8% annual growth, same as the month prior. 

Nevertheless, after 10 months of double-digit annual home price growth nationally, home price acceleration is showing signs of reprieve. In addition to the national growth rate stalling, the 10-city annual growth slowed from 19.2% to 18.6%, and the 20-city annual rate was down from 20% to 19.7% in August, non-seasonally adjusted.

At the same time, seasonally adjusted monthly changes in the three indexes further highlight the slowing trend. After the onset of the pandemic and home price growth taking a step back in May and June of 2020, monthly price increases surged with all three indexes, seeing a 1.5% monthly jump by August 2020. The last time home prices increased at such a pace was in 2013. By April of this year, monthly increases hovered closer to 2%.

Two Straight Months Trending Lower

For the last two consecutive months, monthly home price gains have trended lower. Nationally, monthly increases slowed from 1.8% in June to 1.4% in August. August monthly increase was the slowest since February 2021.

 Both the 10-city and 20-city indexes monthly growth rates declined although the 10-city index rate slowed more notably. For both city indexes, the August monthly increase was the slowest since July 2020.

Among the 20 cities reported by the S&P CoreLogic Case-Shiller, all saw slowing of monthly gains between the peak months in 2021, which varied across cities, to August 2021.

In Phoenix, which was seeing the strongest monthly gains in the group since March 2021 and had strongest annual home price growth for 26 consecutive months, gains slowed in August to 2.3% from 3.4% in June. 

San Diego’s Slowing is Notable

Most notable slowing of monthly gains was evident in San Diego, down from 2.9% in April to 1% in August, followed by San Francisco which slowed from 2.7% to 2.1%, and Seattle—from 2.8% to 1.1%. As a result of the slowing in Phoenix, monthly gains in August were strongest in Tampa and Las Vegas.

Atlanta reported the smallest decline in monthly gains and showed a relatively robust 2.1% gain in August, down from 2.3% in July.

Andreis Bergeron (no relation), head of brokerage operations at Awning, tells GlobeSt.com it is no surprise the market is beginning to cool given the cyclical environment of real estate and the two-year-long hyper-growth it has experienced. 

He said that the growth that real estate has seen over the last two years “was a perfect storm” created by COVID-19, stimulus packages, artificially low-interest rates, lack of housing supply, and increasing demand in single-family rentals and home owners.

“Yes, price growth is slowing but it is still strong,” Bergeron said. “You have to remember that we are comparing this year’s performance to last year which had a handful of external factors influencing growth.” Meanwhile, buyers are exhausted after a two-year-long bull market of losing to multiple offer situations and are taking a break, he continues. 

Bergeron points out that typically the selling season slows down drastically after October and picks back up in March. “This is exactly what is happening today but it is being exacerbated because we did not experience a seasonal slowdown last year.

“Big cities such as San Francisco and New York got hit hard during the pandemic and experienced a mass exodus of renters and owners moving to the suburbs looking for larger square footage and who were not willing to pay the premiums for living in a city without the typical attractions and amenities. 

“This trend led to rents and prices decreasing leaving room for opportunistic investors to swoop up unique deals. Now, with COVID-19 and vaccines becoming a part of everyday life, these cities are beginning to revive as companies are opening back up their offices, entertainment, retail shops, and restaurants begin to return to a new normal.”