The U.S. housing market is currently in a “disinflation and deflationary vortex,” according to real estate analyst Nick Gerli, founder of real-estate analytics platform Reventure App.
“Home price growth on the national basis has slowed to basically flat year-over-year, and now home prices are declining in almost half the states in the U.S.,” Gerli said in a video released on YouTube. “Meanwhile, rent growth has slowed to its slowest level in 14 years, indicating that we are just seeing inventory pile up all across the housing market.”
In Gerli’s opinion, the combination of these two factors could signal “the precipice of a big decline,” as he expects to see price decreases continue next year.
What Is Happening in the US Housing Market, in Numbers
The market has faced a slowdown this year, as buyers have started withdrawing amid ongoing affordability issues, including sky-high home prices, elevated borrowing costs, and rising home insurance premiums. As a result, inventory has surged all across the nation—though in some places more than others—offering more options to buyers and giving them more negotiating power.
There were over 2.1 million homes for sale in the U.S. housing market in August, according to Redfin, up 10.5 percent from a year earlier. In the same month, sales were down 2.2 percent and homes were spending an average of eight days longer in the market before going under contract.
Despite a slowdown in demand and sales, the median sale price of the typical U.S. home was still rising. In August, it was $439,198, up 1.5 percent compared to a year earlier. This, however, was one of the slowest year-over-year increases in months—a sign of what Gerli calls disinflation.
Disinflation represents a slowdown in the rate of inflation, which happens when prices are still rising, but at a much slower pace. In this case, home prices are still growing, but at a much more gradually than they were in the years of the pandemic home-buying frenzy.
While Gerli has become more pessimistic about the future of the entire U.S. market, he admits that not all areas of the country are experiencing the same downward conditions right now. Former boomtowns which became overheated during the pandemic are now experiencing starker corrections.
The markets with the biggest inventory surplus—many of which are in Florida and Texas, which have experienced a boom during the pandemic—all have declining year-over-year prices. According to Redfin, the median sale price of a home in Florida was $403,100 in August, down 0.13 percent year-over-year. In Texas, it was $345,900, down 0.59 percent year-over-year. This is what Gerli calls deflation.
But in markets where the housing shortage is still acute—including many metropolitan areas in the North, Northeast, and Midwest—home prices are still growing.
Rental Market Woes
It is the rental market, though, which has gotten Gerli worried. Last year, the country reported the slowest rent growth since 2010, with rent prices rising by just 0.3 percent, according to property data firm Yardi Matrix.
This slowdown has continued this year. “The rental market has taken a big downward shift in the last six months. We are seeing declining rents in more and more markets. And we are actually seeing the lowest single-family rent growth we’ve seen in 14 years going back to the end of the last housing crash,” Gerli said in the YouTube video.
“When you see the rental market also starting to experience the downturn at the same time as the for-sale market, it is telling you there’s weakness, there’s disinflation and deflationary pressure going on,” he said.
Once again, the data tells us a tale of two countries. The rental markets which faced a boom in demand during the pandemic have since faced a steep correction which has improved affordability for tenants, especially as new stock built by developers over the past five years landed on the market.
According to Reventure data, rent in Austin, Texas, has dropped by 18.3 percent over the past three years. In Fort Myers, Florida, it has fallen by 15.3 percent, and in Colorado Springs, Colorado, by 12.5 percent.
But in markets in the Northeast and Midwest, rent prices have continued growing over the past three years. Hartford, Connecticut, saw the biggest rent price growth, according to Reventure, at 11 percent, followed by Chicago (10 percent); Omaha, Nebraska (9 percent); Providence, Rhode Island (8 percent); and Louisville, Kentucky (7 percent).
What This Means for Homebuyers and Renters
Affordability is definitely an issue that millions of Americans continue to struggle with when it comes to the housing and rental market.
“Households right now need to pay 37-38 percent of their gross income on their debt when they purchase a house,” Gerli said. “That’s one of the highest debt-to-income ratio levels we have ever seen.” This is bringing down demand across the country.
While in the rental market affordability is not as big an issue, “we are now seeing some headwinds due to lower population growth, lower immigration, and now some economic weakness in hiring that is now causing rental demand to come down.”
Meanwhile, investors are also trying to get rid of their properties, as they can no longer afford the investment, according to Gerli.
All of those factors hitting the market at once—lower demand from homebuyers, rentals, and investors—are causing the real-estate disinflation the analyst talks about, which “ultimately,” he said, “will be a good thing for most people.”
