Home Price Gains Slide Again In June To 3.1%: Is This The New Normal?

Although homeowners aren’t seeing their property values skyrocket like they were in recent years past, home prices appear to be settling into a more sustainable growth pattern that’s better aligned with wages and gives buyers more purchasing power. 

According to the S&P CoreLogic Case-Shiller Index released this morning, annual home price gains across the country weakened for the 15th month straight in June to 3.1%, down from 3.3% in May.

That’s a long cooling streak, but keep in mind that homes overall are still gaining value at a healthy clip. By historical standards this pace of price appreciation is actually quite normal. It just feels low compared to the extreme price growth seen over the past few years. (Last June, for example, home prices were up 6.2% year-over-year or rising at double the annual rate amid a hot stretch that peaked in the spring of 2018).

“While housing has clearly cooled off from 2018, home price gains in most cities remain positive in low single digits,” said Philip Murphy, managing director and global head of index governance at S&P Dow Jones Indices, in a press statement. “Therefore, it is likely that current rates of change will generally be sustained barring an economic downturn.”

Home prices and talks of a potential recession

Ah yes, the economic downturn. The latest data from Case-Shiller comes as red flags of a looming recession pile up, including a shaky stock market, global trade conflicts, and inverted yield curve signaling a flock among investors toward safer long-term bets.

When you look at the big picture, though, most of the market fundamentals that drive housing performance are still in solid shape. The U.S. added a respectable 164,000 jobs to the economy in July, unemployment remains at a near 50-year low, attractive interest rates will continue to buoy buyer demand, and consumers keep buying stuff.

“Unless unemployment takes a sharp dive, borrowers should also be better equipped to deal with a normal downturn this time around,” said Javier Vivas, director of economic research at realtor.com, in a press statement. “In line with that, lower mortgage rates are giving a second wind to homebuyers this summer and we’re still expecting the lack of inventory, not the stock market, to be the main factor holding back home sales.”

So at this point the recession concerns are just that: concerns, and a loss of economic momentum won’t necessarily translate to a tanked housing market. Also of relevance: The Case-Shiller price reading is a three-month running average ended in June, so the numbers may not reflect all the current dynamics of the market. In fact, Lawrence Yun, Chief Economist for the National Association of Realtors (NAR), says that the market may be hotter than it appears based on the latest numbers from Case-Shiller. 

“Though showing mild deceleration in price growth, it is worth noting that this index is a bit of a lagging indicator,” Yun said in a press statement. “The figure is likely to show re-acceleration in home price gains in the upcoming months, as the market has been shifting towards higher demand due to lower mortgage rates and reduced supply as home builders constructed fewer homes this year compared to the last year.”

Despite signs that the inventory drought was easing in late 2018, this year the supply of homes for sale has steadily shrunk. According to NAR’s most recent existing-home sales report, inventory dwindled to 1.89 million available homes in July, a 1.6% decrease from the year prior. Not ideal for buyers, but it does rule out the possibility that an oversupply will trigger another housing crisis anytime soon.

Prices at the metro level: Which cities are the hottest right now?

As prices correct nationally, some markets are seeing more extreme shifts in price growth than others. Generally the markets where prices rose the fastest a few years ago have snapped back drastically, while the moderately priced cities continue to appreciate faster than average.

According to Case-Shiller’s 20-City Composite, metro areas with more affordable housing options such as Phoenix, Las Vegas, and Tampa—where prices rose 5.8%, 5.5%, and 4.7%, respectively in June—are outperforming more expensive cities. San Francisco prices rose just 0.7% while Seattle was the only city to experience negative appreciation (-1.3% in June).

While more people move to places like Phoenix, Las Vegas, Tampa, Atlanta, and Charlotte for their cost of living, the boost in migration is shifting buyer behavior. According to realtor.com Senior Economist George Ratiu, as prices rise in these mid-tier metros, buyers are pivoting away from downtown housing and expanding their search to more reasonably priced neighborhoods. “A realtor.com report showed that 47% of millennials preferred small-town and rural areas, with 34% looking to live in suburban areas, compared to only 16% who are looking to purchase a home in urban areas,” Ratiu said in a press statement.

How will home prices fare moving forward?

According to leading industry economists, it’s most likely that home prices will either level off to a viable ~3% or even pick up pace later in the year. There is one wild card, and it has to do with consumer sentiment and psychology more than anything else: Will concerns of a recession be heavy enough to sway homebuyer habits? 

“Recent increases in sales volume suggest that the housing market has some fight left,” said Zillow Economist Matthew Speakman in a statement. “As long as signs of growing economic uncertainty do not dissuade people from entering the market, this slower pace of home price appreciation should hold steady as we enter the second half of 2019.”

Fingers crossed.

This post first appeared on Forbes.com. To see the original, click here.