Home Prices Rose in August but Fell Behind Inflation

Home prices kept rising in August, but more slowly than everything else. The S&P Cotality Case-Shiller National Home Price Index rose 2.1% from a year earlier, up from 1.9% in July. The Federal Housing Finance Agency's index, which uses loans backed by Fannie Mae and Freddie Mac, rose 2.4% from a year earlier and 0.3% from July. Both reports came out Tuesday.

Inflation ran at 3.4% in August, about 1.3 points ahead of the Case-Shiller gain. That means home prices fell in real terms. "Home prices declined in real terms for the 15th consecutive month," said Rebecca Kaufman, associate director at S&P Dow Jones Indices. She said affordability remains challenging, with oil near $100 a barrel and mortgage rates higher. Freddie Mac's 30-year average was 7.32% last week.

The gap between cities is wide. Chicago led for the sixth month in a row, up 6.7% from a year ago, followed by New York at 6.2% and Cleveland at 4.3%. At the other end, Seattle fell 2.0%, its third straight month as the weakest city, with Las Vegas down 1.3% and Denver down 0.8%. The 20-city index rose 2.7% and the 10-city index 3.6%.

Economists do not see a crash. Odeta Kushi, deputy chief economist at First American, called the slowdown gradual, not a house price crash, and said falling prices in some markets help affordability even with high rates. Glen Weinberg, chief operating officer at Fairview Commercial Lending, warned that if inflation stays high, the squeeze on buyers could last for years.

The numbers fit a slowing market. Last week the National Association of Realtors said pending home sales hit a record low in September. The next price reports come out November 24.

For agents, the practical point is pricing. Sellers who remember fast gains may expect more than the market will pay, especially once inflation is counted. Show them recent sales from the last 60 to 90 days, not last spring's, and price to what buyers can afford at today's rates. Buyers, for their part, may have more room to negotiate than the headlines suggest. The figures were first reported by Mortgage Professional.