[An earlier version of this article appeared on Forbes.com.]
“Decelerating” is the word everyone seems to be using for the real estate market. Home prices aren’t falling, they just aren’t increasing as fast anymore — that is, home prices are decelerating.
The next question that leaps to everyone’s mind is whether this deceleration is the beginning of a change in the market: “Are home prices on their way to plateauing and eventually falling?”
Good question! The biggest financial event in the lives of millions of Americans was the real estate bust ten years ago. Many were wiped out financially. They haven’t forgotten. We’re all worried it might happen again.
The September data from S&P Case-Shiller Home Price Index shows that home price increases are indeed decelerating but prices haven’t flattened out and they’re not declining, at least not yet.
None of the 20 cities covered by Case-Shiller saw home prices this July (2018) that were lower than they were last July (2017).
The increase in home price increases was slower in 12 of the 20 Case-Shiller cities over the last 12 months (July 2017-July 2018) compared to the previous 12 months (July 2016-July 2017). Price increases, however, increased in seven of the 20 Case-Shiller cities. That means price increases slowed down in 12 cities and sped up in seven cities. The deceleration trend isn’t super strong, at least not yet.
For the U.S. as a whole, home prices increased slightly more in the last 12 months compared to the previous 12 months. Home prices increased 5.8% from July 2016 to July 2017, and 6.0% from July 2017 to July 2018. That 6.0% home price increase is large historically. From 1990 through 1997, for example, the 12-month increase in the home price index never touched 6.0%.
Las Vegas was again the fastest appreciating housing market in the country over the last 12 months. Las Vegas prices increased 14%. Seattle home prices increased 12%. Las Vegas took the No. 1 spot from Seattle in June.
As you can see in the graph above, Las Vegas was very much a bubble city during the real estate boom and bust. Seattle was bubbly but not one of the big bubble cities. Today, Seattle home prices are far above where they were at the bubble peak in 2006 and Las Vegas home prices are far below where they were at the peak.
The slowest appreciating of the 20 Case-Shiller markets are still Washington D.C. and Chicago.
Again, looking at the graph above you can see the two cities have completely different stories. The real estate boom in Washington D.C. was as big as the one in Las Vegas but the real estate bust in Washington DC was half the size of the one in Las Vegas.
Washington D.C. was the slowest appreciating city over the last 12 months but its home prices are far higher than the home prices in Las Vegas relative to 2006.
And that brings us to one common explanation of the deceleration. “The index of housing affordability has worsened substantially since the start of the year,” says David M. Blitzer, managing director and chairman of the Index Committee at S&P Dow Jones Indices.