Last week I noted that the deceleration in YoY prices in the existing home sales report was indicative of the ongoing rebalancing of the housing market, and I would be looking for confirmation in the repeat home sales reports this week.

This morning, we got it.

On a seasonally adjusted basis, in the three month average through February, according to the Case-Shiller national index (light blue in the graphs below), prices rose 0.3%, and the somewhat more leading FHFA purchase only index (dark blue) rose 0.1%. This is welcome news, because in late 2024 the trend was one of re-acceleration. In particular, this is the second month in a row of tame increases in the FHFA index. [Note: FRED hasn’t updated the FHFA data yet]:

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Both indexes also decelerated on a YoY basis, as the Case Shiller index fell by -0.2% to a 3.9% gain, and the FHFA index by -0.9% also to a 3.9% YoY increase:

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Because house prices lead the measure of shelter inflation in the CPI, specifically Owners Equivalent Rent by 12-18 months, despite the good news this month the recent acceleration in sales prices is likely to lead to an even slower deceleration in the official CPI measure of shelter. On the other hand, this month’s report adds to the evidence that OER will trend gradually towards roughly a 3.5% - or even 3.0% - YoY increase in the months ahead.

This is particularly the case as the most leading rental index, the Fed’s experimental all new rental index, was updated several weeks ago for Q1, and indicated a median YoY *decrease* in new apartment rents of -2.2% YoY, with all rents including existing rentals increasing at a rate of +3.3% YoY in Q1:

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As a result, here is the updated calculation of the house prices vs. the YoY% change in Owners Equivalent rent:

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Note that the last time the Case-Shiller and FHFA Indexes were in this range YoY (2019), Owners Equivalent rent gradually declined in the 12-24 months thereafter to the +2% YoY level. So this morning’s reports were good news for the rebalancing of the existing vs. new homes markets.

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