Slowing of home price growth ‘is certainly a welcome change,’ economist says

Selma Hepp, deputy chief economist at Corelogic, joins Yahoo Finance Live to discuss the latest data on home prices and what it means for the housing market.

Video Transcript

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SEANA SMITH: Homes are getting even more expensive. The latest CoreLogic Case Shiller report showing home prices notched another month of more than 20% year over year gains. But the momentum is slowing just a bit. For more on this, we want to bring in Selma Hepp, CoreLogic's deputy chief economist. Selma, it's great to see you. So in the report we got this morning, the pace of the climb is slowing very, very slightly. But just give us first your assessment of the housing market today, what we could expect to see over the next couple of weeks.

SELMA HEPP: Yes. Certainly. Well, thanks. For having me so today's Case Shiller home price index does suggest the slowing of it, does suggest that we are in a tipping point in terms of home price growth. And we do expect going forward that that deceleration in home prices is going to take even-- take on even a harder turn. And home prices will slow down substantially by this time next year.

DAVE BRIGGS: Let's just put this in context though. Still, massive gains compared to pre-pandemic. I saw a chart you put out on LinkedIn showing home prices have increased 40% since the pandemic started. So we're talking about from all time highs were unsustainable, weren't they?

SELMA HEPP: No, certainly that's correct. The pace of growth at 20 plus percent is unsustainable. And it was bringing a lot of people discomfort in terms of thinking about what happened last time around pre-Great Recession when home prices were accelerating in similar pace that they are today. So slowing of home price growth is certainly a welcome change to the market. And in theory, it should bring more balance between buyers and sellers, and more healthier housing market conditions.

RACHELLE AKUFFO: And I want to ask you about the difference between some of these lower tier priced homes versus mid to high range. Are you seeing the same sorts of correlations throughout?

SELMA HEPP: Well, to some extent, yes and no. So in the last few months prior to this current month's release, home prices were growing slow-- faster for middle and high tier price homes. This month, we are seeing a continued acceleration in low priced homes. So I mean, it's only one month of data. So it really doesn't certainly suggest a continuation of any kind of trend. But during the pandemic, we did see more home price acceleration and higher tier price-- in higher priced tiers. And we'll see if that trend continues going forward.

SEANA SMITH: Selma, what do you make of some of the regional differences that we are seeing? Because when you take a look at prices in the south, they continued to post some of the strongest monthly gains that we have seen. Is this a trend that you see accelerating? And why do you think we're seeing a bit of a disconnect between what we're seeing in the south and some areas in the northeast?

SELMA HEPP: Right. So it really reflects migration patterns. We've seen a lot of people moving because of the availability of work from home policies. They're moving down to southern parts of the country, particularly Florida, where home price growth has been as much as 30% to 40%. And so, I do think that the higher home price growth in south will continue, though I think because some of the home-- some of the housing markets up in northeast are now becoming more-- relatively more affordable, at least to where they were before, because the demand has dampened.

So I think that's one dynamic. The other dynamic is that some of the strongest home price growth that we saw in western markets, for example, have slowed much more substantially than those in the south. And those are markets that are relatively more sensitive to low consumer confidence, higher mortgage rates. And so we've seen more of a slowing in home price growth in those markets in the west.

DAVE BRIGGS: Well, you mentioned Florida, Tampa, and Miami both up more than 33% year to date. We saw some data this morning showing home flipping represents 10% of transactions. How is that contributing to keeping pricing high? And Selma, what are you seeing from inventory? Is it beginning to loosen up?

SELMA HEPP: Yeah, so let's start with inventory first. Well, in terms of new listings, there hasn't been a substantial improvement. I mean, there's seasonal increases that we would see any time anywhere at this time of the year. However, the new listing trend still is below last year, or even the year prior. So it's still trending lower. But what's happening is because we have a lower demand and fewer bidders out there, bidding wars were a sort of normality over the last year.

We're seeing fewer of those. So homes are sitting on the market a little bit longer. So active inventory has actually increased. Now in terms of the buyers out there, there certainly is more investor buyer. You mentioned flipping. Flipping is not as much of an issue as it was last time around. But we do see happening more often now is more investor purchases, also more second home purchases. So all of those are adding to the demand that we would actually have anyways at this time in the market.

RACHELLE AKUFFO: So for some of these investors then, these investors who are buying these homes, what is that doing in terms of keeping the prices sustained? Obviously, they have a lot more cash to burn than, say, the average person who's trying to find a home.

SELMA HEPP: Yeah, so there hasn't been really any conclusive results looking at impact of investor purchases on local housing markets. There generally tend to be more active in markets where we've seen more people moving into those markets. So limiting supply would anyways be an issue. And what they're doing with that supply, they tend to turn it into rental inventory.

And so when you have a new people, a new immigration coming into a local market, those folks tend to rent first anyways. So it's not necessarily taken out of the purchase market. So there's no conclusive evidence, again, that they have a upward pressure on home prices because there's more investor activity in the market.