FHFA and S&P Case Shiller have released their monthly home price indices for December, showing a continuation of trends seen in the previous month. While FHFA declined by 0.1%, Case Shiller saw a slightly steeper drop at a pace of 0.5%. Despite the abrupt reversal from the strong pace of gains seen earlier in 2022, price declines have been relatively modest, suggesting that home prices have simply leveled off without undergoing a large outright correction.
If FHFA continues to move mostly sideways, as it arguably has over the last four months, it would indicate that prices are not necessarily destined to lose much ground in year-over-year terms. However, this could change in the future, and it’s worth noting that the current correction has been very orderly compared to the 2008-2009 financial crisis. During that time, prices were losing nearly 1.5-2% every month, ultimately resulting in a nearly 20% decline in year-over-year terms. By comparison, the current correction is relatively shallow.
The tight inventory situation and the absence of systemic concerns in credit markets all but guarantee that the current correction will remain nothing like the financial crisis. It’s important to note that FHFA has a broader reach than Case Shiller, which is focused on the 20 largest metro areas. However, both HPIs are widely followed and provide insight into the overall state of the housing market.
Overall, the current trends in home prices suggest that the market is experiencing a period of moderation rather than a significant downturn. While this could change in the future, the current situation is relatively stable and does not indicate any major concerns for the housing market as a whole. As always, it’s important to keep a close eye on housing trends and to remain informed about the state of the market in order to make informed decisions about buying, selling, or investing in real estate.