Housing Market by the Numbers – Where are Home Prices Falling? | American Enterprise Institute

Sissi Li

Senior Data Analytics Manager, AEI Housing Center

With the mortgage rates doubled and existing home sales languishing, many are wondering if the housing boom is over. Short answer in three words: location, location, location.

In its latest briefing, AEI Housing Center pointed out that nationally, home prices seem to have reached an inflection point in June 2022, with month-over-month change flattening to near zero, and actual mom declines expected for July and August.

However, by drilling down into price tiers and localities, the stories vary, with the high price tier and out West being the first to cool down.

One way to slice the home price data is by price tiers. We divide home sales into four price tiers based on their access to leverage. Preliminary data in June 2022 show that on a month-over-month basis, home prices are slowing down across all four price tiers; however, high price tier is the first to experience a negative change (-0.6%), followed by medium-high price tier which levels with a month ago. The overall price change in June 2022 was still a robust 0.2%.

Check out the interactive graphic here.

High price tier, which accounts for around 6% of the entire market, mainly consists of loans above the GSE loan limits. These loans, while having little access to leverage provided by the agencies, have historically been more sensitive to the changes in interest rates.

In fact, the high price tier’s response to the recent rate hikes mirrors what happened at the end of 2018: when 30-year fixed rates climbed to near 5%, home prices in the high tier dropped -1.5% on a month-over-month basis, the largest decline across all four price tiers.

West v. The Rest: A Tale of Two Markets

A second way is to examine by metro and group by geography. Here, weakness is emerging in the west. Of the 52 largest metros (ranked by home sales in the Public Records), 21 saw a price decline in June 2022. Among these metros, 11 were out west, with San Francisco, San Jose and Seattle being some of the worst performers.

Boise and Las Vegas were the only two exceptions in the west. While the pace of growth has declined somewhat in both metros, the home prices seem to have yet peaked. According to the June 2022 preliminary data, home prices grew 0.2% from May 2022 in Las Vegas, and 1.8% in Boise.

Compared to the west, the rest of the nation shows a mixed trend. Three quarters of these metros experienced a positive price growth in June 22, with New York, Columbus and Kansas City
being some of the best performers. These metros had a relatively modest housing boom since the pandemic, and have been holding up well so far.

Also in the Team Positive Growth are the Florida metros. Home prices soared in these metros during the pandemic, as the warm weather and relatively affordable prices have attracted high-wage workers across the country. As of June 2022, prices in these metros remain robust, growing from 0.2% in Tampa to 1.1% in Orlando – with the exception of Cape Coral.

Home prices in this top destination in Florida have increased a stunning 67% in the past two years — the fastest growth in the nation. Right now this home buying frenzy seems to have ended, as Cape Coral reported the first decline (-1.0%) on a month-over-month basis since the pandemic.

While data in June 2022 are still preliminary due to latency in data reporting, they offer us a direction of where the market is heading in today’s turbulent environment. Areas with large gains during the pandemic such as the California metros will likely continue slowing; others that had moderate gains may follow suit, albeit at a slower rate. So stay tuned to future updates of Housing Market by the Numbers.

Note: data featured in this post may be found at AEI’s monthly update of Home Prices and Supply.

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