After a prolonged period of skyrocketing housing prices, signs of a potential shift in the market are emerging. A recent tweet by Raoul Pal, founder of Real Vision, suggests that we may be at the end of house price inflation, with mild house price deflation on the horizon. The Case Shiller 20 city Composite Index was referenced as evidence of this shift.
However, there is some debate about the accuracy of the Case Shiller Index, as it reportedly uses outdated methodology and lags by five months. Alternative data from the National Association of Realtors (NAR) and the Mortgage Bankers Association (MBA) seem to support the idea of a cooling market, with figures showing a slight decline in national average house prices, new home prices, and mortgage size.
The ongoing macro conditions of the housing market have drawn comparisons to Japan’s housing situation in the 1990s. Some argue that the days of real estate as an investment are over, with housing returning to its primary function as a place to live.
While the extent of the cooling remains to be seen, the changing landscape appears to be impacting different regions and segments of the market differently. For example, some areas in the southeast United States are still experiencing growth in houses priced under $250,000 due to low supply. Conversely, the luxury market and west coast regions are experiencing more significant slowdowns.
Some experts believe that the strongest economic countries will feel the property bubble burst the hardest, while others argue that central banks’ actions and mortgage rates will play a significant role in shaping the future of the housing market.
In any case, it is clear that the housing market is entering a new phase, with potential consequences for homebuyers, sellers, and investors alike.
Adding to the concerns, Michael A. Gayed, CFA (@leadlagreport) recently commented on the potential risks in the market, stating, “Meanwhile, Lumber. April is going to absolutely suck. Risk-off is coming. This time it’s not about volatility. Conditions look ripe for an accident in the short-term.”