Case Shiller Home Prices: Second Month of Declines

Bottom Line:  Home prices fell sharply in August, falling more than expected for the second month, with nearly every major market in the 20-city index seeing lower prices. The most significant declines were in the West and Southwest - Seattle declined nearly 3.7% on the month, while the major California cities were down 1-3%. Overall, the sudden declines in housing activity as the market adjusted to the record increase in mortgages continued to take a toll on prices through August. And most indications suggest further declines in September and October. While supply remains tight, adjusting to the new mortgage rate regime will likely involve a significant downward correction in home prices. Finally, one important note for monetary policy -- Owner's Equivalent Rent in the Consumer Price Index and housing inputs to the PCE Price Index track Case-Shiller with a 14-month lag. Housing-related inputs could be a DEFLATIONARY force by the 2nd Half of next year. But that's not likely until we go through a period of slower readings in the next few months, followed by one more push higher in the Spring of 2023.Case Shiller 20-City Home Price Index FELL by 1.32% (seasonally adjusted) in August to 309.9, compared with market expectations for a decline of -0.8%. Home prices are 13.1% ABOVE their year-ago level.
 
On a non-seasonally adjusted basis, the home price index FELL by 1.6% on the month.Housing prices fell in all of the 20 metro areas in August (on a seasonally adjusted basis) but were higher in 20 of 20 metro areas on a year-over-year basis.San Francisco had the smallest year-over-year increase at 6.7% while Miami had the largest year-over-year increase at 31.6%.