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Pandemic Boomtowns Experiencing Waning Price Growth

S&P Dow Jones Indices (S&P DJI) has released the latest results for the S&P CoreLogic Case-Shiller Indices for November 2022, showing that home prices declined overall nationwide.

The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported a 7.7% annual gain in November, down from 9.2% in the previous month. The 10-City Composite annual increase reported was 6.3%, down from 8% the previous month. The 20-City Composite posted a 6.8% year-over-year gain, down from 8.6% in the previous month.

Regionally, S&P Dow Jones found Miami, Tampa, and Atlanta reporting the highest year-over-year gains among the 20 cities in November, with Miami leading the way with an 18.4% year-over-year price increase, followed by Tampa in second with a 16.9% increase, and Atlanta in third with a 12.7% increase.

“San Francisco was first to post an annual decline with prices down about 2% year-over-year,” said CoreLogic Chief Economist Selma Hepp. “At the same time, pandemic boomtowns, such as Phoenix, Las Vegas and Seattle are now experiencing the largest waning in price growth from last year, while home prices in cities in the Northeast, and Midwest such as New York and Boston, Chicago and Detroit, are more resilient given a lesser upswing in price growth seen in those areas during the pandemic.”

All 20 cities reported lower price increases in the year ending November 2022 compared to the year ending October 2022.

“November 2022 marked the fifth consecutive month of declining home prices in the U.S.,” said Craig J. Lazzara, Managing Director at S&P DJI. “For example, the National Composite Index fell -0.6% for the month, reflecting a -3.6% decline since the market peaked in June 2022. We saw comparable patterns in our 10- and 20-City Composites, both of which stand more than -5.0% below their June peaks. These declines, of course, came after very strong price increases in late 2021 and the first half of 2022. Despite its recent weakness, on a year-over-year basis the National Composite gained 7.7%, which is in the 74th percentile of historical performance levels.”

Before seasonal adjustment, the U.S. National Index posted a -0.6% month-over-month decrease in November, while the 10-City and 20-City Composites posted decreases of -0.7% and -0.8%, respectively.

After seasonal adjustment, the U.S. National Index posted a month-over-month decrease of -0.3%, and the 10-City and 20-City Composites both posted decreases of -0.5%. In November, all 20 cities reported declines before seasonal adjustments. After seasonal adjustments, 19 cities reported declines, with only Detroit increasing 0.1%.

“November also saw the Freddie Mac 30-year fixed rate rise above 7.0% for the second time in 2022. Even though the rate fell in the second half of the month, buyers were squeezed by higher payments at a time when overall consumer prices continued rising,” added Realtor.com Senior Economist George Ratiu. “Markets have adjusted since November, with the number of homes for sale continuing to grow, properties spending longer on the market, and price growth moderating further. The demand-supply dynamics have placed buyers on a stronger footing at the start of 2023, providing them much-needed leverage at the negotiation table. Moreover, mortgage rates have been on a downward trend, moving closer to 6.0% at the close of January. However, buyers are not likely to see rates drop significantly lower in the next few weeks.”

Just last week, Freddie Mac reported that mortgage rates continued to slide to start 2023, falling to 6.13%, the lowest level since mid-September, upon news from the Mortgage Bankers Association (MBA) that application volume rose 7% week-over-week.

“As the Federal Reserve moves interest rates higher, mortgage financing continues to be a headwind for home prices,” said Lazzara. “Economic weakness, including the possibility of a recession, would also constrain potential buyers. Given these prospects for a challenging macroeconomic environment, home prices may well continue to weaken.”

In fact, the Federal Open Market Committee (FOMC) is scheduled to meet this week and the results of the meeting may chart the course for the mortgage finance market for the next quarter.

“Financial and real estate markets are keeping a close eye on this week’s meeting of the Federal Reserve Open Markets Committee, expecting a more moderate rate hike in light of the slowing inflation,” noted Ratiu. “However, the Fed is poised to continue pushing the funds rate higher during this year in order to bring inflation near the 2% target. For buyers and sellers, this signals additional adjustment in median prices in the months ahead.”

About Author: Eric C. Peck

Eric C. Peck has 20-plus years’ experience covering the mortgage industry, he most recently served as Editor-in-Chief for The Mortgage Press and National Mortgage Professional Magazine. Peck graduated from the New York Institute of Technology where he received his B.A. in Communication Arts/Media. After graduating, he began his professional career with Videography Magazine before landing in the mortgage space. Peck has edited three published books and has served as Copy Editor for Entrepreneur.com.

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