The FHFA and Case Shiller house price indexes were reported this morning, with both continuing to show that the peak in house prices took place during the summer.

For the month, the seasonally adjusted FHFA index rose +0.1%, vs. a +0.9% increase one year ago, and following two months of -0.6% and -0.7%, respectively. The Case Shiller national index declined -0.5%, following -0.5% and -0.9% declines in the previous two months.

Here are the absolute seasonally adjusted values. The FHFA index is down -1.2%, and the Case Shiller national index is down -2.6%, respectively from their June peaks:

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And here are the YoY% changes, with the FHFA up 11.0% and the Case Shiller national index up 11.2% (Note: FRED has not yet updated the Case Shiller data):

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The question now is, how far down do house prices go? In the 2007-11 bust, house prices fell a little over -20%. But in the smaller 1990-91 downturn, prices only declined about -3%. 

I have seen guesstimates of a -5% to -10% decline in house prices in this downturn, and that is a reasonable first dart-throw, although my guesstimate would be at the -10% end of that range. That’s because the Fed seems hell-bent on causing a sharp recession, and that recession will bring lots of joblessness, which in turn will mean more people unable to make mortgage payments, and so suffering foreclosure.

Speaking of the Fed, here is my updated graph of the YoY% change in the FHFA index (/2) vs. Owner’s Equivalent Rent in the CPI:

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For literally over a year I have been writing that the house price indexes forecast OER rising all during this year, ultimately to record YoY% increases, and peaking at perhaps 9%; dragging core consumer inflation higher with it. Three of the four forecasts have com to pass. One is pending, with the most recent OER reading up 6.9%.

The continued YoY deceleration in the house price indexes give me confidence that, after continuing to rise for a few more months, probably beginning next spring or so, monthly OER increases will begin to decline as well. 

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