There was unwelcome news in this morning’s repeat home sales reports from the FHFA and Case-Shiller. On a seasonally adjusted basis, in the three month average through December, according to the Case-Shiller national index (light blue in the graphs below) prices rose 0.5%, and the somewhat more leading FHFA purchase only index (dark blue) rose 0.4%. Both of these continue the trend of re-acceleration we have seen in house prices in the second half of 2024 [Note: FRED hasn’t updated the FHFA data yet]:

Both indexes also accelerated on a YoY basis, the Case Shiller index by 0.1% to a 3.9% gain, and the FHFA index by +0.5% to a 4.7% YoY increase:

Because house prices lead the measure of shelter inflation in the CPI, specifically Owners Equivalent Rent by 12-18 months, here is the updated calculation of its trend. Despite the increases in the house price indexes in the past several months, there is still every reason to believe that OER should continue to trend gradually towards roughly a 3.5% YoY increase in the months ahead:

The most leading rental index, the Fed’s experimental all new rental index, has not been updated since November, but the similar Apartment List National Rent Report as of the end of January continued to indicate that YoY rent increases should decline further. So the bulk of the evidence continues to point further deceleration in that huge component of consumer price inflation:

Because prices generally follow sales, as a refresher here is the graph of existing home sales. As I wrote earlier this week, for the past 2 years these have remained in a relatively tight range (following mortgage rates):

The takeaway from the increased price pressure in the existing home market as measured by the FHFA and Case Shiller Indexes is that the trend of slowly abating shelter inflation in the CPI may slow even further, although it seems likely to slow down.

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