The housing market has been widely frozen since mortgage rates increased a few years ago, but recent indicators stressed the possibility of extended prices.
The latest report on the price of Houses of Case-Shiller showed a monthly decrease of 0.3% in the index of 20 cities in April, more serious than the revised downward decrease of 0.2% of March.
In a note from Tuesday, Thomas Ryan, economist in North America at Capital Economics, warned that consecutive decreases could point out a future “more correction”.
“After falling in March, the additional decrease of 0.3% m / m of housing prices in April increases the risk that prices come into a sustained slowdown, because the market is finally calm under the weight of mortgage rates close to 7%,” he added.
On an annualized basis of three months, housing prices dropped by 0.4%, Ryan noted. And although prices are increasing from one year to the next, it is always the slowest rate since August 2023
Case-Shiller data is not the only red flag, as the FHFA price index showed a monthly drop of 0.4%.
“Obviously, the market for existing houses loses its momentum, because demand remains anemic due to borrowing costs up to the sky, while more people put their house for sale, forcing sellers to adjust their price expectations,” wrote Ryan.
Previous data also align with a downward trend. The median selling price of an existing house has dropped for five consecutive months on a seasonal basis. This is because the number of houses available for sale is back at pre-pale levels.
Admittedly, the drop in prices also makes houses more attractive, potentially arousing more demand and representing a certain relief for young Americans who seek to buy but who have been sheltered from the market.
But economists from Citi Research reported ongoing opposite winds, awarding the drop in prices at high mortgage rates, high uncertainty, softening of consumer demand and a weakening of the labor market.
In addition, the slowdown in activity in the housing sector as a whole is an early sign that the underlying demand is weakening this year, Citi said in the recent note.
“Although prices can always fluctuate from month to month, a coherent softening in median selling prices suggests that the trend is likely to pursue more stable measures of new housing prices such as the Shiller Case index,” predicted economists.
Capital Economics said there were still some reasons to believe that a prolonged slowdown can be avoided. Ryan stressed that this diet remains relatively tight, despite an expansion in recent times.
Meanwhile, the mortgage market is also healthy, reinforced by more than a decade of stricter loan standards instituted after the great financial krach. In addition, resilience continues on the job market should prevent forced sale on the housing market, he added.
“All that is said, the weakness of recent prices data means that we must start to take the perspective of a long period of drop in housing prices, which we will consider for our next American housing prospects,” said Ryan.
