Home prices — The real estate market has been volatile since the onset of the 2020 pandemic. There have been periods when home prices have dropped and others when they have surged. Home prices have lately risen again, posing difficulties for buyers.
National house prices rose 0.7% in May, establishing a new high. Since April, home prices have climbed at a seasonally adjusted pace, according to the Black Knight Home Price Index. Prices have been growing since January, and in May they were 0.1% higher than in 2022.
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2022 market
The huge increase in mortgage interest rates in 2022 slowed the housing market, but the respite was fleeting. Despite mortgage rates being at historic highs, housing values have begun to increase again. Furthermore, the progress is becoming more rapid with each passing month.
Andy Walden, the vice president of Black Knight enterprise research firm, stated: “There is no doubt that the housing market has reignited from a home price perspective.”
“Though the backward-looking annual growth rate dipped to 0.1%, May’s exceptionally strong +0.7% month-over-month gain would equate to an annualized growth rate of 8.9%, suggesting the annual home price growth rate would remain at or near 0% for only a short time before inflecting and trending sharply higher in coming months.”
Last summer, prices began to decline as the average interest rate on a 30-year fixed-rate mortgage exceeded twofold in six months. Home prices continued to decrease until January. By then, buyer demand had restored, but it was colliding with exceedingly restricted supply. Buyers, on the other hand, appeared to have raised their expectations and money in anticipation of increased interest rates.
The current landscape
Robert Reffkin, CEO of Compassion Real Estate, offered an interesting perspective on the present situation, saying:
“Earlier this year, I shared that I believed 6% mortgage rates were accepted as the new normal. I think now we’re in an environment where 7% mortgage rates are now the new normal, and people are accepting it.”
By May, more than half of the country’s 50 main housing markets had either returned to or achieved new highs, with the Midwest and Northeast leading the way. Meanwhile, housing values in the West remain low, particularly in areas dubbed “boom towns,” which witnessed a surge of faraway workers searching for new homes in the early days of the pandemic.
Prices, though, look to be firming up again. Homes in San Jose, California, for example, lost 10% of their value in 2022, but inventory is starting to decline again as local values continue to rise. They grew by 1.4% in May, the market’s second highest month-to-month rise on a seasonally adjusted basis.
In May, the following areas had price increases:
- San Diego
- San Francisco
- Los Angeles
- Seattle
Austin, Texas, is an unusual outlier in the group and is recognized as a significant pandemic boom city.
“Inventory there continues to run above pre-pandemic levels, putting downward pressure on prices, which have fallen to -13.8% below peak, the largest gap of any market,” said Walden. “Just eight of the top 50 markets are currently more than 5% below their 2022 peaks.”
Another decline
Supply is once again declining. For example, job advertisements are today around 25% lower than they were in 2022. One explanation for this might be that homeowners with mortgage rates below 4% are unwilling to sell in order to avoid paying a higher interest rate on a new property. The whole inventory is now around half of what it was before the pandemic, resulting in a widespread housing boom.
However, sales of previously owned homes remain lower than in 2022, owing to a shortage of supply rather than higher costs. The median price of a previously owned house in May, according to the National Association of Realtors, was $396,1000. However, they discovered this week that the average home is now selling for more than its advertised price for the first time in over a year.
Bidding wars have also reappeared, despite the impact on affordability. According to Black Knight, as of June 22, when 30-year rates were 6.67%, the monthly payment on a median-priced property with 20% down and a 30-year mortgage was $2,258 in principal and interest. It is the corporation’s highest payment on record, and it is slightly more than the $2,234 due in October.
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