Home prices may have finally reached their tipping point after increasing 11.4% year-over-year.
According to First American’s Chief Economist Mark Fleming, home prices are in the beginning stages of correcting to demand.
“As buyers pull back from the market and sellers adjust their price expectations, house prices will adjust, but the strong economic conditions and the shortage of supply relative to demand continue to support the housing market,” Fleming said in a statement.
“We’re seeing the first indications that price appreciation may be slowing, but the underlying fundamental housing market conditions support a natural moderation of house prices rather than a sharp decline,” he added.
Fleming says the decline in home prices will be gradual because pent up demand will cradle prices as they fall. Home price appreciation in this cycle has largely been a function of short supply and natural demand as opposed to the artificial demand created by ease of mortgage financing that caused the boom before the crash.
“Real estate markets tend to move in cycles, but they do not always end in a housing bust. As rising prices and modestly rising mortgage rates undermine affordability and buyers struggle to find something to buy with so little for sale, it’s natural to see some moderation in price appreciation,” Fleming said.
Consumer buying power is on the way up according to First Am’s data. Though unadjusted house prices are 1.3% above the 2006 peak, consumer house-buying power has increased by 55% since 2006. When consumer house-buying power is a factored in, home prices are actually 36.9% below their 2006 peak and 11% below prices in January 2000.
According to Fleming, price easing is already showing up in some markets. First Am’s data shows that 21 markets experienced a monthly decline in their RHPI levels in June, the largest number of markets to see declines since September 2017.
Pittsburgh; Raleigh; Charlotte; Riverside, California; and Minneapolis posted the largest decreases in RHPI falling 2%, 0.5%, 0.5%, 0.4% and 0.4%, respectively.