Existing home prices have likely peaked

– by a New Deal Democrat

By now, you may already know that existing home sales fell further in July to an 8-year low (excluding the pandemic lockdown months:

That’s roughly a 30% drop from their peak and certainly a recession level.

But perhaps more importantly right now, it looks like existing home prices have already peaked. Here’s the chart for one year from FRED:

Since there is no seasonal adjustment for prices, year-over-year is the only real way to measure, and year-over-year prices are up 10.7%.

Here’s a longer-term look at year-over-year price change (excluding this month), via Mortgage News Daily:

My rule of thumb is that when a non-seasonally adjusted metric is down more than 1/2 from its peak year over year over the last 12 months, it has probably peaked. A year ago, prices rose by over 23% year-on-year. Since 10.7% is less than half of that, prices are probably past their peak.

I have often pointed out that the sequence in the housing market is that sales peak first and prices second. As new home prices fell on a seasonally adjusted basis at the start of last month, if existing home prices have now joined them, it means the pattern has already run. We should expect inventories to continue to increase from now on, adding to the downward pressure on prices.

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