If you've ever aspired to purchase your own home or contemplate selling your current property for an upgrade, you're well-acquainted with the whirlwind of emotions that fluctuating home prices can trigger. It's a narrative entwined with financial aspirations, moments of uncertainty, and a touch of anxiety that countless individuals have experienced.
However, if you've postponed your relocation plans due to concerns that home prices might decrease, it's crucial to understand that they are not in decline. Quite the contrary, they are on a steady ascent. Multiple national data sources confirm a consistent upward trend in home prices this year (as illustrated in the graph below):
The graph reveals a significant rise in home prices during the first half of 2022, followed by a corrective dip in the second half (depicted in red). Although these declines were brief and shallow, media headlines emphasized them, leading to consumer apprehension.
What hasn't received sufficient coverage is the current trend in 2023, where home prices are once again increasing, but at a more sustainable pace (illustrated by the green bars on the right side of the graphs). After the excessive price hikes and subsequent corrections in 2022, the fact that all three reports indicate a more typical price appreciation this year is positive news for the housing market.
Orphe Divounguy, Senior Economist at Zillow, describes the changes in home prices over the past 12 months as follows:
“The U.S. housing market has surged over the past year after a temporary hiccup from July 2022-January 2023. . . . That downturn has proven to be short-lived as housing has rebounded impressively so far in 2023. . .”
In the coming months, home price increases usually begin to slow down. During this period, there's a potential for the media to misinterpret the deceleration of price appreciation as a decline in home values. Remember, a slower rate of price growth is still a form of growth.
Why Are Home Prices Increasing Now?
One reason why home prices are going back up is because there still aren’t enough homes for sale for all the people who want to buy them.
Elevated mortgage rates lead to a decline in buyer demand and a reduction in the supply of homes for sale. This is due to the mortgage rate lock-in effect, where homeowners are hesitant to sell and switch to higher rates for their next home. Consequently, the housing market's supply and demand balance is affected by higher mortgage rates for both buyers and sellers. Nonetheless, because demand outpaces supply, home prices persist in rising, as noted by Freddie Mac:
“While rising interest rates have reduced affordability—and therefore demand—they have also reduced supply through the mortgage rate lock-in effect. Overall, it appears the reduction in supply has outweighed the decrease in demand, thus house prices have started to increase . . .”
Here’s How This Impacts You
BUYERS: If you've held off on buying a home due to fears of potential depreciation, the resurgence in home prices should provide reassurance. Purchasing a home offers an opportunity to own something that typically appreciates in value over time.
SELLERS: If you've delayed selling your house due to concerns about its value in the fluctuating market, teaming up with a real estate agent and listing your property could be a wise decision. There's no need to wait any longer, as the latest data suggests that home prices are now in your favor.
Bottom Line
If you postponed your relocation plans due to concerns about declining home prices, recent data reveals an overall increase in home prices nationwide. Collaborate with a local real estate agent to gain insights into the specific trends in your local area
