What will happen with House Prices?

by Calculated Risk on 9/05/2025 12:05:00 PM

Today, in the Real Estate Newsletter: What will happen with House Prices?

Brief excerpt:

Almost every day a journalist or an analyst asks me what will happen with house prices.

Every cycle is different, and usually I focus on inventory, sales, and months-of-supply to answer this question.

However, there have been significant policy changes this year, especially with trade and immigration. This has led to a period of rising inflation, and a weakening employment situation (rising unemployment rate). A period of stagflation.

These are powerful forces for the economy and housing.
…
But what is the impact of rising unemployment?

The following graph shows the year-over-year in the Case-Shiller National Index versus the Sahm rule (from economist Claudia Sahm). The Sahm rule is a measure of changes in the unemployment rate. It compares the three-month moving average of the unemployment rate (U3) to the minimum of the three-month averages from the previous 12 months.

In general, a rising unemployment rate corresponds to weaker house prices. Of course, correlation does not imply causation. And there are exceptions – like at the onset of the pandemic when the unemployment increased sharply, but house prices took off (mortgage rates fell sharply and most potential homebuyers stayed employed).

This is much more in the article.