The housing market’s sudden reversal is pushing down prices by the largest amount since the Great Recession.
The widely watched Case-Shiller indexes in August for Los Angeles and Orange counties and the nation took the largest one-month drops since 2009.
For the month, the L.A.-O.C. index fell by 2.25% – the 10th largest decline in Case-Shiller history that dates to 1987. The index fell 1.62% the previous month, the No. 17 drop.
The housing market has started to slump as the Federal Reserve hikes interest rates to curb the hottest inflation in decades. Even with the deceleration, prices remain high in many cities compared with last year. Coupled with mortgage rates that are edging closer to 7%, many would-be buyers have been shut out, while some sellers have retreated.
Case-Shiller indexes are known to be slow-moving benchmarks. These yardsticks reflect long-term price changes within sales of single-family homes for the three months ending in August.
Over 12 months, the L.A.-O.C. index is up 12.1%, a gain far smaller than the 23.4% pandemic high set earlier this year. This puts the index is 4.3% off the all-time high but still 39% above February 2020, just before coronavirus upended the economy.
While prices are still up year over year, they’re cooling at a swift pace. The 12-month L.A.-O.C. gain was 3.6 points below July’s 15.7% increase — tying July for the largest cooling in appreciation since 1987.
Nationally, a measure of prices in 20 large US cities in August fell 1.3% on a month-over-month basis, the most since March 2009. A national measure of prices increased 13% in August from a year earlier, down from a 15.6% gain in July, the biggest deceleration in the history of the index.
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“The forceful deceleration in US housing prices that we noted a month ago continued,” Craig Lazzara, a managing director at S&P Dow Jones Indices, said in the statement. “Given the continuing prospects for a challenging macroeconomic environment, home prices may well continue to decelerate.”
The market’s shift in recent months has started to cool the pandemic boom when houses were quickly snapped up. Sales of existing homes fell for an eighth straight month in September, according to National Association of Realtors data, while new home construction also dropped in September, according to recent government data.
“As we move into the colder months of the year, we can expect further declines in home sales and continued downward adjustment in prices,” said George Ratiu, manager of economic research at Realtor.com.