US home prices recently fell about .24% in most major markets, according to the Case-Shiller US National Home Price Index. Fortune reports this is the first month-to-month decline in average US home prices in major markets since 2012. The statistics refer to a price drop between June and July, echoing economists critical of recent Federal interest rate hikes. However, the decline in home prices isn’t necessarily a good thing. Here’s everything you need to know about falling US home prices.
US home prices fell because of high mortgage rates.
Simply put, many people can’t afford the current mortgage rates. Recent trends show those who have the means are buying homes for cash to avoid the high monthly payment. Fortune calls it “pressurized affordability” amid 7% mortgage rates. Sellers let go of their property for less because buyers can’t afford market-price mortgages.
Economists such as Wharton professor Jeremy Siegel are highly critical of the Fed’s recent interest rate increases. Siegel argued that the Fed’s interest rates are unnecessary and only hurt consumers precisely because of falling home prices. The consumer price index, one of the Federal Reserve’s main tools to determine interest rates, doesn’t show current housing trends. Siegel says CPI housing statistics lag about 18 months behind current market conditions, meaning the Fed uses outdated data.
What does the price drop mean for the economy?
Though many fear the worst, according to CNN, this isn’t the prequel to a housing market crash like in 2008. Howard Hughes Corp. CEO David O’Reilly said the difference is right now, demand for homes still far outweighs the supply. “We probably are technically in a housing recession,” O’Reilly told CNN. “We are clearly in a downturn, but this is much different [than 2008].” However, even the United Nations said the Fed needs to lower interest rates or risk sending us into a recession.
Fortune says that in the 89 major markets where prices fell, the drops are due to one of two reasons. They either exist in “NASDAQ” areas, such as San Francisco or Seattle, that play home to tech companies. Or they’re in “frothy” markets like Austin, Texas, or Boise, Idaho, which saw a boom when everyone had to work from home.