Case-Shiller home price data via St. Louis Fed, chart by Mish

Home Price Synopsis

Home prices have peaked this cycle but the decline is certainly tiny compared to the run up.

Case-Shiller lags. August is the latest data and that represents sales primarily made in June and July so the declines shown are undoubtedly understated.

CS National ,Top 10 Metro, CPI, OER

Case-Shiller home price data, OER, and CPI data via St. Louis Fed, chart by Mish

Home Price Disconnect Notes

• National is the Case-Shiller national home price index.
• 10-City represents the weighted average of the cities in the first chart.
• CPI is the Consumer Price Index
• OER stands for Owner's Equivalent Rent. It is the single largest component in the CPI with a current weight of 23.65% of the total CPI.
• Rent of Primary Residence is a CPI component with a weight of 7.25% of the CPI.

OER is the price the Bureau of Labor Statistics (BLS) says one would pay to rent one's own house from oneself, unfurnished, without utilities.

Percent Change January 2020 to August 2022

• Case-Shiller National: 42.99 Percent
• Case-Shiller 10-City: 37.65 Percent
• OER: 10.40 Percent
• CPI: 14.81 Percent

Percent Change Since June 2022

• Case-Shiller National: -1.55 Percent
• Case-Shiller 10-City: -0.55 Percent

Existing Home Sales

Existing home sales data from National Association of Realtors via St. Louis Fed, chart by Mish

Key Points

• The Fed fueled a speculative bubble in housing, purposely, by reckless QE and unreasonably low interest rates.
• Despite the dramatic decline in sales, prices have barely begun to fall.
• It's a long way down from here in terms of time and price if sellers hold firm. 
• Recent buyers have little choice, they are locked into their homes due to mortgage rates that have soared. 

Trapped In Their Homes

Who wants to trade a 2.5 percent mortgage for a 6 or 7 percent mortgage unless home prices crash? The current national average rate is 7.22 percent according to Mortgage News Daily.

Given that cyclical components like housing and durable goods drive the economy, if the Fed succeeds in a slow walkdown, the economy will be weak for years.

The Fed blew an enormous bubble and these are the consequences. 

Cyclical Components of GDP, the Most Important Chart in Macro

If you missed it, please note Cyclical Components of GDP, the Most Important Chart in Macro

My follow-up article was A Big Housing Bust is the Key to Understanding This Recession

Housing leads recessions and recoveries and housing rates to be weak for a long time.

Add it all up and you have the opposite of the Covid-recession, a long period of economic weakness with minimal rise in unemployment.

It does not matter whether you label this a recession or not. Besides, the NBER might not even announce the recession until it's over. That happened once already.

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