Housing market at risk of "sustained downturn" as price growth cools
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The risk of a "sustained downturn" in the housing market is rising, as home prices show further signs of cooling off.
Why it matters: The sizzling housing market has elevated the wealth of countless Americans in recent years.
Driving the news: Home prices rose 2.7% in April, compared with a year earlier, down from a 3.5% jump in March, according to the S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index released Tuesday.
- April's is the smallest annual price gain in nearly two years, S&P noted.
- And on a seasonally adjusted basis, prices fell 0.4% nationally from March.
What they're saying: That decline "raises the risk that prices are entering a sustained downturn, as the market finally buckles under the weight of near-7% mortgage rates," Capital Economics North American economist Thomas Ryan wrote.
- "Clearly, the existing homes market is losing momentum," Ryan added, citing sky-high borrowing costs and rising supplies pressuring sellers' price expectations.
Zoom in: Other recent datapoints also point to the housing market losing steam.
- Sales of existing homes fell 0.7% in May from a year earlier, according to data Monday from the National Association of Realtors.
- And median home sale prices rose just 0.7% year over year in May — the slowest growth since June 2023. And prices were actually down on a year-over-year basis in 11 of the 50 most populous U.S. metro areas, Redfin notes.
Yes, but: Inventory remains relatively tight as homeowners cling to lower mortgage rates, which will likely prevent prices from falling significantly.
- "This supply-demand imbalance continues to provide a price floor," Nicholas Godec from S&P writes.
The big picture: "We're witnessing a housing market in transition," Godec wrote Tuesday. "The era of broad-based, rapid price appreciation appears over, replaced by a more selective environment where local fundamentals matter more than national trends."
The bottom line: "The weakness of the recent price data mean that we have to start taking the prospect of an extended period of house price declines more seriously," according to Ryan.
