The housing market is no longer a wealth creation engine as a collapse of the price of houses
The high prices of houses and mortgage rates have created unaffordable conditions for many Americans, but the capacity of the housing market to create more wealth has.
This is because even if the prices of houses continue to hover around record levels, they also drop lower and are lagging behind the inflation rate, which heated in the middle of President Donald Trump’s prices.
“For the first time in years, house prices do not follow the pace of wider inflation,” said Nicolas
GODEC, responsible for fixed income exchanges and products at S&P DOW Jones Indices, in a press release on Tuesday. The last time it happened was mid-2023.
The latest S&P price data Cotality Case-Shiller showed that the 20 cities index dropped by 0.3% in June compared to the previous month, marking the fourth consecutive monthly decline.
On an annual basis, the composite of 20 cities increased by 2.1%, against an increase of 2.8%in the previous month, and the national index experienced an annual gain of 1.9%, against 2.3%. Meanwhile, the consumer price index increased by 2.7% in June compared to a year ago.
“This reversal is historically significant: during pandemic overvoltage, the value of the houses climbed at two -digit annual rates which far exceeded inflation, building a real substantial wealth for the owners,” added GODEC. “Now, the wealth of American housing has in fact decreased in adjusted terms in terms of inflation in the past year – a notable erosion that reflects the new market balance.”
The low prices suggest that the demand for underlying housing remains stifled, he said, despite spring and summer being historically the advanced period of house purchase.
In fact, this year’s sales season was a bust. Although sales of existing houses have recently accelerated, they are always moderate and the prices are stable. In addition, sales of new houses collapse with declining prices.
The conditions were so disastrous that the chief economist of Moody’s Analytics, Mark Zandi, sounded even stronger on the housing market.
In the opinion of GODEC, the recent change on the housing market could represent a new normal, but which also has a positive angle.
“For the future, the maturation of this housing cycle seems to settle around the growth of inflation
Rather than the wealth creation engine in recent years, “he said.
It is like the hot spots of the pandemic era in the solar belt have cooled with demand that is increasingly bowing to established industrial centers which benefit from sustainable fundamentals such as employment growth, greater affordability and favorable demography.
“Although this represents a loss of the extraordinary gains which the owners of 2020-2022 benefit, this can point out a healthier long-term trajectory where the appreciation of the accommodation aligns more closely with the wider economic fundamentals rather than on a speculative excess,” added GODEC.
Meanwhile, Ey-Parthenon analysts seemed darker on the housing market in a report that was also published on Tuesday, predicting that the prices of houses will become negative on an annual basis by the end of the year due to low demand and increase in inventories.
The lists of houses increased by 25% compared to a year ago, and stocks increased for 21 consecutive months. The manufacturers of houses are also cautious since the demand is under pressure and that the construction costs are always high.
“In the meantime, the housing market should remain stagnant, because slowing down income and constantly high borrowing costs continue to limit demand,” said the EY report. “Although the changes proposed to the regulatory environment can help improve the feeling of manufacturers, high construction costs due to higher rates as well as many stocks will continue to limit construction activity.”
