Bubble Watch examines trends that may indicate impending economic and / or housing problems.
Hum: The rise in house prices is not what it used to be, although it takes some work to find this trend.
A source: S&P CoreLogic Case-Shiller has published various indices for the value of residential real estate for August.
Trend
You might not see it in a lot of news headlines, but Case-Shiller reported the smallest monthly gain since July 2020 in its much-discussed 20 Cities Index for August.
The national benchmark rose 1.2% MoM versus 1.5% growth in July. And growth over the month decreased in all but two cities.
Homes in Los Angeles and Orange counties rose 1% in August, up from 1.7% in July and the lowest monthly gain since June 2020. The Bay Area grew 1% in August, up from 1.2%.
Cooling is also detected with a longer statistical lens.
In 20 US cities, growth was 19.7% year-over-year, up from 20% in July. This was the first slowdown in annual profit growth after 13 months of currency appreciation. Annual price increases declined from July to August in 12 of the 20 cities.
The growth of the LA-OC rate by 18.5% decreased from 19.1% in July. And the growth in the Bay area by 21.2% in August compared to the same period last year decreased from 21.9%.
So where were the biggest and most attractive year-long bursts? As of 27 months, Phoenix was # 1 among 20 cities – up 33.3%. In second place was San Diego (up 26.2%), followed by Tampa (25.9%).
Dissection
I’ll let S&P guru Craig J. Lazzara try to explain it all.
“We previously assumed that the growth in the US housing market was driven in part by the response to the COVID pandemic as potential buyers move from urban apartments to suburban homes,” he wrote.
“More data will be needed to understand whether this surge in demand represents the acceleration in shopping that would have happened over the next few years anyway, or reflects a secular shift in preference for location,” he continued. “The August data is consistent with any explanation. The August data also suggests that house price increases, while still very strong, may start to slow. “
Another kind
Remember, the index is a seasonally adjusted three-month moving average of market conditions. Much of the volatility is smoothed out by the benchmark. Plus, this math means we’re really talking about the July pricing model.
Imagine we look at stock prices in the same way. And with a delay of several months.
Now, you might hear that the S&P 500 stock index rose 3% on average in July in the same month. Year after year? Growth by 36% in July.
Psst! Since then, the stock has declined. At the moment, the S&P 500 is losing 0.3% monthly on average in October. And the annual profit dropped to 30%.
In addition, the National Association of Realtors’ median sale price for an existing home in the United States was $ 352,800 in September, the third consecutive drop from a June peak of $ 362,800, or 2.8%. The median was 13.3% compared to September 2020, the smallest increase compared to the same period last year.
How Sparkling?
On a scale from zero bubbles (no bubbles here) to five bubbles (warning about five alarms) … FOUR BUBBLES!
Yes, I know we are still talking about benefits – only less.
Plus, the inevitable slowdown in house price spikes in a pandemic could be a healthy trend for the real estate industry and the economy as a whole.
Unfortunately, any other non-real estate business likes to talk about buyer-friendly trends, if not direct deals. You know, a “clearance sale” for most traders. Or remember the debate about “affordability” of housing?
But discounts on real estate in any form – even to a lesser extent – are often rejected by various housing gurus.
It’s not that these so-called experts are being paid directly or indirectly to sell homes, although this is definitely a conflict. Chances are, few real estate people these days are selling property as a “haven”. Instead, they provide hunters with an opportunity to make a profit or “create the wealth of generations.”
So the downgrade (and dare I mention that mortgage rates are at a six-month high) makes selling difficult. And so #pricegainsmatter!
Jonathan Lansner is a business commentator for the Southern California News Group. You can reach him at [email protected]
