Home Prices Fall but Waiting on Its Inflation Impact

Home Prices Fall but Waiting on Its Inflation Impact

Home Prices Still Rising as of February - But Presure Easing Rapidly
Home prices have come down substantially in recent months after rising rapidly during Covid.

Why it matters: Home prices are a major component of inflation. For instance, housing is almost 35% of the Consumer Price Index (CPI).

Details: According to the Case-Shiller national index, home prices are now up 2% on an annual basis as of February.

  • Contrast this to April 2022, when they were up almost 21% on an annual basis.
  • They have fallen because of higher interest rates. Those higher interest rates reduced demand for housing and forced sellers to lower prices to attract interested buyers.

Be smart: It takes time for housing prices to fully translate into inflation data. Inflation is only now reflecting the enormous run-up in prices over the previous two years.

  • That means it will take some time for the recent sharp downturn in prices to work its way into the inflation data.

Looking ahead: Once housing falls below the overall inflation rate it will exert downward pressure, but that might not happen until later this year.

  • When it does it will put strong downward pressure on inflation.