Compared to stock and bond markets, where prices update continuously throughout the trading day, the value of residential real estate is hard to observe; and while one buyer’s shares of stock XYZ are interchangeable with another’s, houses are not similarly fungible. Yet the value of an investor’s house is often a significant component of his net worth, and the aggregate value of real estate is an important indicator of the health of the economy. It’s for these reasons that S&P Dow Jones Indices publishes monthly updates of the S&P CoreLogic Case-Shiller Home Price Indices. We recently published our update for December 2022, which enables us to make some observations about calendar 2022 as a whole.
First, U.S. home prices continued to rise in 2022. Our National Composite Index gained 5.8%, which is its 15th highest reading in 35 years of data. That said, 2022’s price gains were significantly lower than those of 2020 and (especially) 2021’s record-setting pace.
Positive gains at a lower rate are evidence of deceleration. Housing is seasonal (with stronger demand in the spring and summer than in the winter), so it’s analytically convenient to look at 12-month price changes, as Exhibit 2 does. The exhibit shows that year-over-year price gains peaked in March 2022 at 20.8%, and began to decline thereafter (with deceleration becoming much more noticeable after the index peaked in June).
Exhibit 2 also reminds us of the remarkable surge in home prices that occurred beginning in 2020. Year-over-year price changes rose steadily from 4.4% in May 2020 until reaching their peak 22 months later. It’s arguable that the growth of remote work fueled at least some of this price move, as larger homes at a distance from urban centers became more attractive in the aftermath of COVID-19-induced shutdowns.
Some urban centers, of course, are more equal than others. In addition to our composite indices, the S&P CoreLogic Case-Shiller family includes data on 20 metropolitan areas, whose 2022 performance is graphed in Exhibit 3. There was an above-average spread between the year’s best performer (Miami, +15.9%) and its worst (San Francisco, -4.2%).
Finally, it’s interesting to observe how some broad social trends are reflected in our housing data. A number of commentators have noted that relatively expensive, high-tax states are losing population to more affordable areas. Exhibit 4 compares average 12-month price changes for the South (Miami, Tampa, Atlanta, Charlotte, and Dallas) and the West Coast (Los Angeles, San Diego, San Francisco, Portland, and Seattle). Over the long run, the relative advantage passes from one series to the other. The West Coast, for example, did much better as housing prices recovered in 2012-2014.
Recently, however, the South has been dominant. Starting in August 2021, the South began to pull ahead, and remained ahead through the end of 2022, consistent with the population trends seen elsewhere.The posts on this blog are opinions, not advice. Please read our Disclaimers.