If you followed the headlines about home prices every month, you'd be excused for concluding that another bubble is upon us. But you'd be wrong.
An article in today's Wall Street Journal summed up the most recent news by reporting that "home prices rise by 12.4% year over year in August." And this is from the Boston Herald last month: "U.S. home prices climb 12.4% in July."
Is it possible that home prices are rising every month by double digits?
The answer is both yes and no.
As CoreLogic reported this morning, August marked the 18th consecutive month of year-over-year home price gains and the seventh such month of double-digit increases. According to the data provider's monthly home price index, the average price of a house rose by 12.4% in August and is now at the highest level since April 2008.
If you don't read between the lines, however, statistics like this are deceiving. While it's true that home prices grew by 12.4% in August over the same month last year, what matters is how much they are currently growing -- that is, on a month-to-month basis. And that rate is moderating significantly.
As CoreLogic chief economist Mark Fleming said (emphasis added):
Home price gains were negligible month over month in August -- an expected decrease in the pace of appreciation as housing enters the off-season. While prices increased more than 12 percent on a year-over-year basis, the month-to-month change is more telling of this year's late summer trend.
The point is that investors should start to adjust their expectations for stocks that are dependent on home price appreciation, as we're already seeing the slowdown make its way to the bottom lines at the nation's largest homebuilders.
In the most recent quarter, new orders at PulteGroup (NYSE:PHM), KB Home (NYSE:KBH), and Beazer Homes (NYSE:BZH) were down by 12%, 9%, and 11%, respectively. While all of their CEOs had generally positive things to say about the state of the housing market, it's hard to argue with the current trajectory of prices.
John Maxfield has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.