Fed freezes US home prices for one year, housing market in deep freeze.

Fed freezes US home prices for one year, housing market in deep freeze.

The Rise and Fall of the Pandemic Housing Boom: A Look at U.S. Home Prices

The year 2022 marked the peak of the pandemic housing boom, as U.S. home prices experienced an unprecedented year-over-year growth rate of 20.8%. Over a span of just over two years, from March 2020 to June 2022, home prices surged by 43.3%, according to the Case-Shiller National Home Price Index. However, as the saying goes, what goes up must come down.

Federal Reserve Chair Jerome Powell expressed concerns about the red-hot housing market, highlighting the significant gap between supply and demand, causing houses to sell at 10% above asking price even before potential buyers set foot inside. Powell emphasized the need for a reset to bring housing prices more in line with fundamental market factors.

Surprisingly, the numbers released by Case-Shiller indicate a decline of 0.5% in U.S. home prices on a year-over-year basis between May 2022 and May 2023. This decline not only resulted from increased interest rates that put a halt to the housing boom but also effectively froze national home prices for an entire year.

For homebuyers who had encountered intense competition and soaring prices during the market’s peak, this cooling off period came as a welcome reprieve. It allowed buyers to explore their options more thoroughly and make more deliberate choices. The market conditions shifted from a frenzy to a more stable environment, giving buyers the opportunity to approach their purchasing decisions with greater clarity.

However, it’s essential to note that while U.S. home prices experienced a slight decline on a year-over-year basis, they saw a month-over-month increase in the first half of 2023. Between April and May 2023, home prices rose by 1.2%, following a 1.3% uptick between March and April 2023. These increases occur during the seasonally strong part of the calendar year for the U.S. housing market.

Economist Robert Shiller points out that part of these price increases may be seasonal, typical of summer trends in the housing market. As data begins to roll in for the seasonally softer second half of the year, we might expect month-over-month declines to reappear.

Case-Shiller’s National Home Price Index provides valuable insights into the U.S. housing market, capturing repeat sales of single-family homes across the country. While the overall home prices have declined, it is worth noting that individual markets vary significantly. Of the 20 major housing markets individually analyzed by Case-Shiller, 15 markets have experienced year-over-year declines. Some notable examples include Seattle (-11.25%), San Francisco (-11.05%), Las Vegas (-7.76%), Phoenix (-7.62%), and Portland, Ore. (-5.05%).

These regional declines, concentrated primarily in the Western states, should come as no surprise. Powell previously warned that achieving a balanced housing market would require a correction, a process necessary to realign prices appropriately.

To summarize the data provided by Case-Shiller, the following abbreviations are used: – MoM (month-over-month) refers to the house price change between April 2023 and May 2023. – YTD (year to date) indicates the house price change between December 2022 and May 2023. – YoY (year-over-year) represents the house price change between May 2022 and May 2023.

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