Vertical Home Price Move Ending

This is what home prices look like in many parts of the USA:

Many of these listings are now cutting prices. I've chatted with people who are looking in other parts of the country, with similar price charts and they're seeing price cuts too. I've seen 10 percent cuts day after day, and some homes are cutting prices by about $10,000 per week. It looks like the bubble peak is past. People are still throwing out insane prices and expecting someone will bite, but there's no bites. Homes aren't selling the same day they're listed, they're still there a month later. Anyone watching like am, is seeing prices relentlessly drop. Where's the bottom? Probably at least 30 percent lower, or in this case, 12 straight weeks of $10,000 price reductions.

Real Inflation

The housing calculation is the main flaw in the CPI. The substitution of owners equivalent rent in place of home prices. Here is the CPI with actual home prices versus the reported CPI with OER:

Mish Shedlock calculated the chart above. He writes:

The result is an adjusted annual CPI rise of 10.74%. That's a new record high for this data series.

...Case-Shiller home price data for February is a three-month average of closed sales for December, January, February. And those sales reflect deals made a month or two earlier. Because of this lag, Case-Shiller indexes may appear to be rising three to five months after prices start to fall.

If what I'm seeing online is correct, home prices won't peak until April. The Case-Shiller index might not peak until June or July. The final peak of the "real" CPI will be well into double-digits.

What are real world implications of this? Unions are already demanding, and getting, double-digit wage increases. To keep up with double-digit inflation, workers need a double-digit cost of living increase to stay level.

Going back to the home chart at the top. How can an area experience 100 to 200 percent increase in home prices without pricing most of people there out of the market? I've looked up and down the market and seen the same thing, all over the country. That home above would have been a reach for someone earning $40,000 per year even if I plug in a generous home price spike between the last sale from 2018, but it wasn't out of reach if they had at least a 20 percent down payment. A frugal consumer could manage it. It is a 4 bedroom, 3 bathroom house with nearly 2,800 square feet on more than an acre of land, perfect for a family.

Today, that same buyer needs an income of $60,000 and a much larger down payment. A home that a lower income family could afford is, with a snap of the fingers, no longer affordable. This is a lower income zip code with a median household income of $31,000. The median income in the whole county is below $60,000. A home that was in reach of most workers in a low-income zip code three years ago is suddenly out of reach for more than half the people in the entire county.

Interest rate increases will lower home affordability, so an even large price decline will be needed to balance supply and demand. Home affordability has already collapsed and will keep falling as rates rise. If the Fed does its job on inflation then, the coming decline in home prices could put 2008 to shame. Most of the excess back then was contained in states such as California and Nevada. This time, the bubble is all over the USA.