U.S. FHFA Prices Slow

U.S. FHFA home prices slowed in August, rising by just 0.3% after a 0.5% July increase, data from the Federal Housing Finance Agency showed. Also year-over-year prices slowed, rising by 5.5% in August after a 5.8% July rise. The July gain of 5.8% was a recent cycle peak and the largest year-over-year gain since May of this year. The year-over-year gain was last stronger in April 2014. House prices are no longer accelerating.

Regional prices decelerated month-to-month in five of 12 regions. Three month changes show decelerations in seven of 12 regions compared to their six-month pace. Six-month percent changes show decelerations in six regions out of 12 regions. Clearly prices are no longer accelerating on any road front. The overall data confirm this and actually show price decelerations in train as the 12-month rise at a 5.5% pace gives way to a deceleration and a 4.5% pace over six months and slows further to a three-month pace of 3.8%.

In the chart, we compare FHFA prices to the median price series for single family homes complied by the NAR (National Association of Realtors). The series, while using very different methodologies, are very similar in terms of the major trends. The FHFA house price index is a weighted repeat sales index. It measures average price changes in repeat sales. The NAR index is simply the median price of all homes sold in a one-month period without any attempt to adjust for home size/quality. However, FHFA prices are - and have been- showing stronger price gains than is the NAR (existing home) series recently. Perhaps the NAR index is picking up more sales of lower quality or small-sized units.

Outlook for Prices

Housing activity is currently undergoing an upswing. Housing starts jumped this past month and existing home sales are rising briskly to a new local high for the three-month moving average of sales. The NAHB index (homebuilders' index) has risen strongly, too. And rising activity often pressures home prices higher. But house prices are nonetheless under downward pressure from other sources. Housing affordability has been slipping. Mortgage rates have moved up and there are concerns that they could rise further as the Federal Reserve is able to raise interest rates. Affordability is also pressured by the combination of flat wages and rising home prices. Rising home prices are actually a negative for the outlook for prices since they cause affordability to fall in this environment. In a high inflation environment, this might not be true, but in this environment with low inflation and constrained wages, rising home prices make homes less affordable and that eventually will stand in the way of further home price increases.