High home prices and mortgage rates have created unaffordable conditions for many Americans, but the housing market\u2019s ability to create more wealth has sputtered.<\/p>\n
That\u2019s because even as home prices continue to hover around record levels, they are also edging lower and lagging behind the rate of inflation, which has heated up amid President Donald Trump\u2019s tariffs.<\/p>\n
\u201cFor the first time in years, home prices are failing to keep pace with broader inflation,\u201d said Nicholas Godec, head of Fixed Income Tradables & Commodities at S&P Dow<\/a> Jones Indices, in a statement on Tuesday<\/a>. The last time that happened was mid-2023.<\/p>\n The latest S&P Cotality Case-Shiller home price data showed that the 20-city index fell 0.3% in June from the prior month, marking the fourth consecutive monthly decline. <\/p>\n On an annual basis, the 20-city composite was up 2.1%, down from a 2.8% increase in the previous month, and the national index saw a 1.9% yearly gain, down from 2.3%. Meanwhile, the consumer price index rose 2.7% in June from a year ago.<\/p>\n \u201cThis reversal is historically significant: During the pandemic surge, home values were climbing at double-digit annual rates that far exceeded inflation, building substantial real wealth for homeowners,\u201d Godec added. \u201cNow, American housing wealth has actually declined in inflation-adjusted terms over the past year\u2014a notable erosion that reflects the market\u2019s new equilibrium.\u201d<\/p>\n Weak prices suggest underlying housing demand remains muted, he said, despite the spring and summer historically being the peak period for homebuying.<\/p>\n In fact, this year\u2019s selling season has been a bust. While sales of existing homes have ticked up recently, they are still subdued and prices are flat. In addition, sales of new homes are slumping with prices down.<\/p>\n Conditions have been so dire that Moody\u2019s Analytics chief economist Mark Zandi sounded the alarm on the housing market<\/a> even louder last month.<\/p>\n In Godec\u2019s view, the recent shift in the housing market could represent a new normal\u2014but one that also has a positive angle.<\/p>\n \u201cLooking ahead, this housing cycle\u2019s maturation appears to be settling around inflation-parity growth rather than the wealth-building engine of recent years,\u201d he said.<\/p>\n That\u2019s as pandemic-era hot spots in the Sun Belt have cooled off with demand increasingly tilting toward established industrial centers that enjoy sustainable fundamentals like employment growth, greater affordability, and favorable demographics.<\/p>\n \u201cWhile this represents a loss of the extraordinary gains homeowners enjoyed from 2020-2022, it may signal a healthier long-term trajectory where housing appreciation aligns more closely with broader economic fundamentals rather than speculative excess,\u201d Godec added.<\/p>\n Meanwhile, analysts at EY-Parthenon\u00a0sounded gloomier about the housing market in a report that also came out on Tuesday, predicting that home prices will turn negative on an annual basis by year-end due to low demand and rising inventories.<\/p>\n Home listings are up 25% from a year ago, and inventories have risen for 21 consecutive months. Homebuilders are also cautious given that demand is under pressure and construction costs are still elevated.<\/p>\n \u201cLooking forward, the housing market is expected to stay stagnant, as slowing income growth and persistently high borrowing costs continue to limit demand,\u201d the EY<\/a> report said. \u201cWhile proposed changes to the regulatory environment can help improve builder sentiment, elevated construction costs due to higher tariffs along with ample inventories will continue to constrain construction activity.\u201d\n<\/p>\n