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Real estate bubble bursts: prices fall for the first time since 2012

The Case-Shiller index, which monitors the evolution of housing prices, recorded "the largest deceleration in [its] history."

Vivienda en venta / Tkoch (Pixabay).

Vivienda en venta / Tkoch (Pixabay).

Published by
José Carlos Rodríguez

Rising interest rates are making mortgages more expensive. The Mortgage Bankers Association (MBA) has the average mortgage rate at 6.5%, a level not seen since 2008. Rising interest rates also have the effect of lowering the current market value of homes.

August data from the Case-Shiller index provides a sign that this process has already begun. ZeroHedge collects a 20-city composite indicator, which declined by 0.44% over the course of August. Analysts expected it to rise 0.20%. "More importantly," notes the economic information portal, "this was the first sequential drop in home prices tracked by Case-Shiller since March 2012, or ten and a half years."

Largest slowdown in the history of the index

Compared to this time last year, prices have risen by 16.06% in ZeroHedge's 20-city data set, more than two and a half points less than the year-over-year increase in July (18.66%). The national composite index shows the year-over-year increase of 15.77%.

Zero Hedge quotes analyst Craig J. Lazzara, managing director of S&P DJI:

For example, while the National Composite Index rose by 15.8% in the 12 months ended July 2022, its year-over-year price rise in June was 18.1%.  The -2.3% difference between those two monthly rates of gain is the largest deceleration in the history of the index.  We saw similar patterns in our 10-City Composite (up 14.9% in July vs. 17.4% in June) and our 20-City Composite (up 16.1% in July vs. 18.7% in June). On a month-over-month basis, all three composites declined in July.

Lazzara adds:

As the Federal Reserve continues to move interest rates upward, mortgage financing has become more expensive, a process that continues to this day.  Given the prospects for a more challenging macroeconomic environment, home prices may well continue to decelerate.

According to a report prepared by Redfin, Seattle is the city where home prices are seeing the largest regression, followed by Las Vegas; San Jose, Calif.; San Diego; Sacramento, Calif.; and Denver. The top ten list is rounded out by Phoenix; Oakland, Calif.; North Port, Fla.; and Tacoma, Wash.

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