Home-price growth slowed by the most on record in 'forceful deceleration' in July, S&P Case-Shiller says

• Growth in house prices slowed at the fastest rate on record in July, according to the S&P CoreLogic Case-Shiller index released Tuesday.
• House prices across the US increased by 15.8% in July over the same month last year. That rate was 18.1% in June.

Growth in house prices eased at the fastest rate on record in July, data released Tuesday showed, with the market cooling as the Federal Reserve's moves to tame inflation propels mortgage rates higher.

House prices across the US logged a 15.8% increase in July over the same month in 2021, lower than the 18.1% annual increase marked in June, according to the S&P CoreLogic Case-Shiller index.

"Although U.S. housing prices remain substantially above their year-ago levels, July's report reflects a forceful deceleration," Craig Lazzara, managing director at S&P DJI, said in the report. "The -2.3% difference between those two monthly rates of gain is the largest deceleration in the history of the index."

The 20-City Composite had a 16.1% year-over-year gain, slower than the 18.7% rise in June and less than the 17% increase expected in an Econoday consensus estimate.

On a monthly basis, home prices in San Francisco and Seattle were down by 3.5% and 3.1%, respectively. San Diego and Los Angeles were respectively down by 2.5% and 1.6%, and Denver was down by 1.4%.

The US housing market has been cooling off as the Fed tightens monetary policy to pull inflation back toward its 2% target. The average 30-year mortgage rate has risen to more than 6% in mid-September, according to Freddie Mac's survey of mortgage lenders, from under 3% late last year.

"Housing is a huge contributor to overheated inflation in 2022, but this will change in 2023," Bill Adams, chief economist at Comerica Bank, said in a note. "The Fed has ended purchases of mortgage-backed securities and Treasuries and started to allow its holdings to run off its balance sheet, pushing up long-term interest rates, and also raised short-term interest rates 3 percentage points since the start of the year."

Financial markets are pricing in expectations for the Fed to raise its benchmark rate to around 4.5% early next year to ensure economic conditions continue to cool and inflation slows, said Adams.

The Fed last week raised interest rates by another 75 basis points to bring the fed funds rate to a range of 3% to 3.25%. Headline consumer price inflation in August remained near a four-decade high at 8.3%, but was down from 8.5% in July and 9.1% in June.

A surge in remote work in America stemming from the COVID-19 pandemic was a key factor in driving up housing demand and subsequently prices in recent years, according to research for the Federal Reserve Bank of San Francisco released Monday. US house prices rose 24% between November 2019 and November 2021.