Of course, national home values are still increasing for the time being, thanks in part to those inventory restraints that don’t look as if they will resolve themselves soon. On the one hand, housing is a slow-moving market in which sellers are reluctant to accept that they can’t get the same price that their neighbors did in the recent past. Transaction volumes are clearly cooling, and that should eventually feed into prices, at the very least cooling price appreciation by the end of the year.
On the other hand, home prices are part of the inflation measures that the Fed tracks though a component called “owners’ equivalent rent,” and their resiliency could encourage the Fed to push up interest rates even higher. It’s a losing battle either way.
That isn’t to say that the broad market is poised for a 2007-like crash; it probably isn’t. Lending standards have vastly improved since then, and it seems unlikely that many homeowners will find themselves forced to sell. Yet with some key markets already slipping, it would be foolhardy to assume that the rest of the housing market couldn’t end up in a similar position soon as long as the Fed remains committed to tight financial conditions. The run-up in prices has been stunning, and it’s only logical to suspect that they could go in reverse for a while.
Jonathan Levin has worked as a Bloomberg journalist in Latin America and the U.S., covering finance, markets and M&A. Most recently, he has served as the company's Miami bureau chief. He is a CFA charterholder.