Daniel Acker | Bloomberg | Bloomberg | Getty Images
Home prices are softening in most markets across the country.
Still, home prices are still higher than they were a year ago and are unlikely to fall sharply.
The sharp rise in mortgage rates over the past few months has made homes more expensive for those who need a loan. Some buyers are pulling back and some sellers are lowering their demands, but strong demand and tight supply support prices.
A recent report uses month-to-month comparisons because of the sharp turnaround in the once-hot pandemic-driven housing boom. As such, changes can appear dramatic.
Black Knight, a real estate software, data and analytics company, reported a second straight month of declines in August, with prices down 0.98% from July.It reported an upwardly revised 1.05% Monthly decrease in JulyTaken together, these are the largest monthly declines in more than 13 years and the eighth largest since at least the early 1990s, Black Knight said.
Ben Graboske, Black Knight’s president of data and analytics, said: , wrote in the report.
“ The winter of 2008, following the bankruptcy of Lehman Brothers and the ensuing financial crisis, was the only month with a larger one-month price decline than July and August.
Despite all these factors, it’s important to remember that real estate is also heavily influenced by local economic strength. This is also seasonal. Families tend to buy larger, more expensive homes in the spring and summer and can move in between school years. Smaller, cheaper homes sell in the fall and winter, driving prices down. This is why house prices are usually compared year after year to get the most accurate reading.
cooling off
Average home prices are now down about 2% ($8,800) from their June peak of $438,000. Black Knight reports that prices are off-peak in 97 of the 100 largest US markets, but he’s about 40% higher than he was in 2019 pre-pandemic.
However, the growth rate is slowing. CoreLogic reported this week that August home prices were 13.5% higher than the same month last year. This is the lowest annual rate of increase since April 2021, according to the report. This partly reflects lower buyer demand due to higher mortgage rates. CoreLogic expects those annual growth rates to continue to shrink, but next year he will show a 3.2% increase by August.
The National Association of Realtors August Home Sales Report, showed that the median value of existing homes rose 7.7% year-on-year. Compare that to last May’s 15% year-over-year increase. The median is often skewed by the type of homes sold. Luxury home sales declined in August after a boom in luxury home sales during the pandemic. That may explain at least part of the modest gains for the year.
But realtors noted that while house prices traditionally fall in July and August, they have fallen three times faster than usual this year.
Certain markets are softening faster than others. According to Black Knight, some of the markets that have seen the biggest declines are some of the formerly most expensive markets, such as San Jose, San Francisco and Seattle. is receiving
Markets that saw the biggest surges in demand during the pandemic, such as Phoenix and Las Vegas, are seeing significant declines. The ability to work from anywhere has drawn people to the relatively affordable market. This surge in demand pushed prices up.
The Florida market continues to see significant price increases and continues to see strong demand as many tech workers moved from Silicon Valley to the Sunbelt during the pandemic.
tight supply buoy price
With demand far outstripping supply, it is unlikely that home prices will fall as dramatically as they did during the Great Recession caused by the financial crisis.
Supply was low before the pandemic due to a construction shortage in the decade after the Great Recession. It’s what drives home prices up more than 40%.
Sellers are few. They recognize that the market is weakening, and some people don’t want to get less than they feel their home deserves.
“Now, not only are prospective sellers beginning to deal with falling demand and lower prices due to sharply rising interest rates, but they are also more willing to abandon historically low-rate mortgages in this environment. Some may be waiting, we need to see the market to see if demand and prices return in the spring,” Graboske said.
The existing housing market has about three months of supply, which is about half what would be considered a balanced market. There is more supply in the new home market, but new construction comes with a price premium and today’s buyers are battling higher mortgage rates. Even though prices have softened slightly, affordability is still one of the worst ever.
What most experts seem to agree on is that this is not a “normal” housing market, or even a normal price adjustment. Inflation, global economic uncertainty, rising mortgage rates and a shortage of available homes for sale are all putting pressure on potential buyers. How far they will retreat and how much that retreat will cool prices remains to be seen.