Home prices recorded a historic drop in August

The Case-Shiller index shows that prices have declined by 2.6% since July, the largest drop since 2003.

Home prices suffered a historic drop of 2.6% in just one month, August. Despite the fact that, compared to August of a year ago, the value of homes is 13% higher, this abrupt drop in one month suggests that prices will continue to fall. This hurts those who recently bought a house.

Three out of four homeowners who purchased their home between 2021 and 2022 regret paying more when the value of their property is falling. On the other hand, Moody's Analytics noted that home prices could fall as much as 20% next year.

According to the Standard & Poor's CoreLogic Case-Shiller index, this 2.6% drop in home prices is a record. Not since 2003 has there been a monthly decline as steep as August's, as Standard & Poor's Dow Jones Indices managing director Craig J. Lazzara explained:

The forceful deceleration in U.S. housing prices that we noted a month ago continued in our report for August 2022. The -2.6% difference between those two monthly rates of change is the largest deceleration in the history of the index (with July’s deceleration now ranking as the second largest).

The index, compiled on home prices in 20 major U.S. cities, shows that in all of them the value declined from July to August. San Francisco (-4.3%), Seattle (-3.9%), San Diego (-2.8%) and Los Angeles (-2.3%) suffered the largest declines, while Miami, Tampa and Charlotte experienced the smallest slowdowns.

Federal Reserve does not help and home sales decline

Adding to the home price issue is the Federal Reserve, which continues to raise interest rates and will be above 4% before the end of this year. For the third consecutive time, interest rates were increased by 0.75%. The central bank applies these increases to fight high inflation, but it makes mortgages more expensive and housing prices continue to fall, as Lazzara said:

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

Mortgage interest rates reached their highest level in two decades, standing at 6.94%, twice as high as in 2021.

Home sales continue to fall to an all-time low. A decline of approximately 1.7 million properties was recorded in the last six months, down 30% since October 2020. Goldman Sachs predicts that the decline will continue over the next few months. According to a report, the investment group links the housing woes to a "sustained downturn in the economy, declining favorable conditions due to the pandemic and declining purchase intent."