Home price growth reached its lowest point in over a decade last month, according to preliminary data by nonpartisan libertarian think tank American Enterprise Institute (AEI), as higher inventory and dwindling demand forced the market to slow down.
The AEI Housing Center's July Home Price Appreciation (HPA) report found that home price growth was 1.8 percent in July, the lowest level since the think tank started tracking this data in 2013. By the end of the year, AEI experts say, home prices will finally stop rising.
What Does The Report Show?
Home price growth nationwide was down in July from both a month earlier, when it was 2.5 percent, and a year earlier, when it was a much higher 4.5 percent.
But the report shows a tale of two markets across the U.S., with the South—especially Florida—reporting the biggest drops in home price growth, while in the Northeast and the Midwest prices are still rising at speed.
The lowest year-over-year home price growth in the country among the 60 largest U.S. metropolitan areas analyzed by AEI was reported in three Florida cities: Cape Coral (-10.9 percent), North Port (-8.6 percent), and Palm Bay (-4.4 percent).
The highest was reported in Cleveland, Ohio (+7 percent), Chicago, Illinois (+6.2 percent), and Grand Rapids, Michigan (+6.1 percent).
Florida is currently experiencing one of the most dramatic price corrections in the country as inventory has surged over the past year due to a recent construction boom in the state and slowing demand. In the Northeast and Midwest, on the other hand, prices have kept up due to a still-acute shortage of homes.
"In July, the regional gap in year-over-year HPA persisted," Tobias Peter, senior fellow and co-director of the AEI Housing Center, said in the report. "Florida remained a key source of downward pressure on home price appreciation, with every major metro in the state continuing to experience negative YoY HPA," he added. "Across the South and West, most metros followed suit, with 27 of 31 below the national average and 17 with negative YoY HPA."
What is Fueling This Reversion of Pricing?
The main reason why home price growth has slowed down—and might even, eventually, reverse—is that mortgage rates have remained stubbornly high since 2022, contributing to the affordability challenges that are keeping buyers on the sidelines.
The pool of entry-level buyers in the U.S. housing market, in particular, has shrunk in the past couple of years, especially in the low price tier. Of all the homes now available on the market, according to a recent Realtor.com report, only 28 percent are affordable for the typical U.S. household.
The result is that there are a lot more homes for sale on the U.S. market right now than buyers can afford to purchase—possibly because a majority of sellers are still trying to get for them the same price they would have gotten during the pandemic homebuying frenzy.
According to the AEI Housing Center's report, inventory last month was 17.3 percent higher than a year earlier, but still 7.1 percent below the level reported in July 2019, before the pandemic.
This imbalance between buyers and sellers is putting a significant downward pressure on prices across the country, especially in those markets where there are enough options for buyers to be picky and force sellers into slashing prices.
Where Are Prices Headed?
AEI experts expect home price growth to slow down to 1.3 percent year-over-year in August and 0.5 percent through the first two weeks of September.
The nominal home price appreciation (HPA), they say, will reach 0 percent by the end of the year, in what they describe as the weakest calendar year performance for home price growth in over a decade.
Newsweek