There has been much speculation and concern about a potential housing crash in recent months. However, a closer look at the data provided by the Black Knight Home Price Index (HPI) suggests that these fears may be unfounded. In fact, the information found in the article indicates a strong housing market with signs of a reheating trend. Let's delve into the details and explore why this data serves as evidence that there is no housing crash happening.
Reversal of Price Pullback: The article highlights that the pullback in home prices observed in late 2022 has now fully reversed itself. In May, the seasonally adjusted Black Knight HPI reached a new record high. This five-month consecutive gain in home prices demonstrates a robust market and indicates that any previous declines were temporary rather than indicative of a long-term crash.
Markets Returning to Peak Levels: Twenty-seven out of the 50 largest markets in the United States, primarily in the Midwest and Northeast regions, have either returned to their prior home price peaks or set new highs this spring. This trend showcases the strength of these markets and their resilience in bouncing back from any temporary setbacks.
Positive Monthly and Annual Growth Rates: May's seasonally adjusted monthly increase of 0.7% translates to an annualized growth rate of 8.9%. Although the annual home price growth rate stood at 0.1% in May, recent trends suggest a potential inflection point in the coming months, with prices trending higher. This upward trajectory indicates a healthy market and contradicts the notion of a housing crash.
Inventory Challenges: While for-sale inventory has improved modestly, it still remains 51% below pre-pandemic levels, presenting a significant challenge. This shortage of inventory exerts upward pressure on home prices, despite attempts by the Federal Reserve to cool the market through higher interest rates. Furthermore, inventory levels have decreased in 95% of major markets this year, highlighting the ongoing supply constraints.
Reversal of Inventory Oversupply: Many Western locales that experienced inventory oversupply and declining prices last year, such as Phoenix, Boise, Ogden, San Francisco, and Colorado Springs, have swung back in 2023. These markets have since seen inventory levels decrease by more than 30 percentage points compared to pre-pandemic levels.
Affordability Concerns: Affordability remains a challenge in the housing market. The principal and interest payment needed to buy the median-priced home reached a record high in June, accounting for 35.7% of median household income. However, it is important to note that this level of unaffordability is comparable to the lows reached late last year. Income growth since fall 2022 has prevented the situation from being even more unaffordable.
Contrary to concerns of a housing crash, the data from the Black Knight Home Price Index indicates a housing market that is experiencing a reheating trend. The reversal of price pullbacks, the return of markets to peak levels, positive monthly and annual growth rates, and the challenges related to inventory and affordability all point to a robust and resilient housing market. While there are concerns to address, such as affordability and supply constraints, it is clear that the housing market is on a positive trajectory, dispelling notions of an impending crash.