Current state of the impending housing downturn

Current state of the impending housing downturn:

You may have noticed some headlines suggesting that real estate prices are experiencing their first year-over-year declines in over a decade.

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Wall Street Journal

This is true, to an extent.

Most such assertions are based on the most recently released S&P Case Shiller Home Price Index, with it’s most recent update for the month of April.

Zillow’s more granular breakdown of median price by zip code tells a slightly different story.

Of the 12,753 zip codes that Zillow has been tracking since January 2000, the average YoY growth for the month of April was 1%. For May it’s 0%. Sales price growth has been on a downward trend since May 2022 (15%) to this point.

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Year-Over-Year Average Median Price Change since January 2001

Regarding the same series of zip codes, average median prices hit a peak in August 2022 of 450k, after which point we started seeing month over month declines in absolute terms. That downward trend in absolute prices reversed itself in April, where we saw the first month-over-month increase in median prices since August last year. That upward trend continued into may.

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Average Median Prices since January 2000 - Zillow Data

So, are we in a downturn?

We are certainly at a crucial moment in time whereby the next few months will reveal the answer to that question. While growth has certainly declined to a stall, the fact that month-over-month positive growth has emerged over the past few months suggest we may have already bottomed out. We know that inventory is still persistently low, so the idea that downward price trends can continue for a prolonged period is tenuious. Still, interest rates are at a decades high, tempering demand.

How can one identify a “bottom”

Previous research I’ve done on the housing crisis and recovery suggests that during the great recession, a handful of false bottoms emerged (real estate prices increased month-over-month) only for the downward trend to continue in earnest. It only became apparent that a bottom emerged after 3 consecutive quarters of positive growth.

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S&P Home Price Index Time Series

So have we already seen the bottom? Or, are we in the midst of a double dip downturn, with the worst yet to come?

We will see what the coming months bring us. Stay tuned!

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