Home price appreciation continued to be strong in December but not nearly as strong as last spring. The big question is whether this is a healthy reset of home price appreciation to lower, more sustainable levels, or whether home price appreciation will continue to shrink.

U.S. home prices were up 4.7% in December (compared to the previous December) according to the latest S&P CoreLogic Case-Shiller Home Price Index. That’s strong appreciation and far above the inflation rate over the same time period which was up only 1.9% (CPI-U).

The worry is whether the slow down in appreciation will continue given how steep the declines in appreciation rates have been since last spring. Annual appreciation fell from 6.5% last April to 4.7% in December.

If home price increases were to continue to shrink at that pace, home price appreciation would be lower than inflation by the end of 2019.

Are home prices just resetting at a lower, more sustainable level or is the slowdown part of a longer-term trend that shows we’re reaching the peak of the current real estate cycle?

Fastest Appreciating Cities

Some cities covered by the Case-Shiller Index that had been riding high on appreciation have seen spectacular falls. Just last May, appreciation in Seattle hit a wild 13.6% annual rate but by December it had fallen back to earth with just 5.1% appreciation. That’s a huge change in just seven months.

Will Seattle house price appreciation level off or continue its rapid descent in 2019? Is the fall a correction from too-high appreciation or is it part of a longer-term downward trend in appreciation rates?

Full-size Interactive Graphs

Hottest House Markets 2015-2018

Seattle was the fastest appreciating city in the country (among the 20 cities covered by the Case-Shiller Home Price Index) throughout 2016, 2017 and the first part of 2018. Since then, Las Vegas has had the hot hand. In 2015, San Francisco and Denver traded off being the hottest real estate market in America.

Home Price Momentum

Overall, U.S. home price momentum fell 1.5 percentage points (from 6.3% in December 2017 to 4.7% in December 2018).

In addition to Seattle’s huge loss of momentum, San Francisco and San Diego also lost a lot of upward price momentum. The two cities ended up appreciating less than the U.S. as a whole in December.


House Price Momentum

Among the 20 Case-Shiller cities, 13 cities lost upward house price momentum and seven cities gained upward house price momentum.

If this slow down in appreciation is a sign that we’re reaching the top of this real estate cycle, what’s that mean when the next recession hits?