Image Source: Pixabay
 

Last month the indexes of repeat home sales from the FHFA and S&P Case Shiller were the final confirmation that the housing market was in deflation.

That continued in this morning’s reports for July. On a seasonally adjusted basis, in the three month average through June, both the Case-Shiller national index (light blue in the graphs below) and the FHFA purchase index declined -0.1%. The peak for the FHFA index (blue in the graphs below) was in March, while that the Case-Shiller Index (gray) was in February. (note: as per usual, FRED hasn’t updated the FHFA information yet):
 

The actual *de*flation in the house price indexes has been -0.7% in the FHFA Index and -1.1% in the Case Shiller Index:
 

On a YoY basis, price gains in both indexes continued to decelerate, at 1.7% for the Case Shiller index, and 2.3% for the FHFA index; but these were the lowest YoY% increases since 2012 for both indexes excluding 5 months in 2023 for the Case Shiller index:
 

Because house prices lead the shelter component of the CPI by 12 - 18 months, this also indicates that they will continue to decelerate over that period. Here is the same graph as above (/2.5 for scale) plus Owners’ Equivalent Rent from the CPI YoY (red):
 

The last time the Case-Shiller and FHFA Indexes were in this range, excluding the Great Recession, was in the 1990s, during which time Owners Equivalent rent was in the 2.5%-3.5% range (vs. 4.1% as of the most recent CPI report).

Similarly, the latest “National Rent Report” from Apartment List for August, released yesterday, showed a decline of -0.8% YoY. While this is only new leases, and the combined experimentsl all rent index published by the Census Bureau does not show a decline yet, after two years of YoY declines the trend continues to be that of sustained deceleration:
 

My conclusion this month is the same as that of last month: all phases of the housing market are either at or near their low points (sales, permits, starts), or declining (prices, construction, employment, and new spec units for sale). What is different is that the manufacturing side of the goods-producing sector has shown renewed vigor in the last couple of months. If that fades as well, it is hard to see how we avoid a recession in the next 12 months.

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