Why Home Prices Keep Going Up
The world of real estate is often a rollercoaster of emotions, especially for those dreaming of buying their own place or selling their current home to make an upgrade. If you've been postponing a move because you're concerned that home prices might drop, it's crucial to understand that they are not on a downward trend. National data from various sources clearly indicates that home prices have continued to rise consistently throughout this year.
The Journey of Home Prices
To comprehend the trajectory of home prices, let's take a closer look at the data represented in the graph below:
In the first half of 2022, home prices experienced significant and dramatic increases (illustrated by the green bars on the left side of the graph). However, these rapid price surges were unsustainable. Consequently, in the second half of the year, prices went through a correction phase, resulting in slight declines (indicated in red). Unfortunately, the media heavily emphasized these drops in their headlines, which, in turn, generated a considerable amount of fear and uncertainty among consumers.
What hasn't been thoroughly covered is the fact that, so far in 2023, home prices are once again on the rise. However, this time, the increases are occurring at a more standard and sustainable pace (depicted by the green bars on the right side of the graph). After experiencing price hikes that were too rapid, followed by necessary corrections in 2022, the return to more typical price appreciation this year is promising news for the housing market.
Orphe Divounguy, Senior Economist at Zillow, offers insight into the evolving home prices over the past year:
“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. . .”
It's worth noting that as the year progresses, home price appreciation typically starts to ease up. During this period, there's a risk that the media might confuse slowing price growth (deceleration of appreciation) with actual home prices falling (depreciation). However, it's crucial not to be deceived. Slower price growth still signifies 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.
Even though higher mortgage rates cause buyer demand to moderate, they also cause the supply of available homes to go down. That’s because of the mortgage rate lock-in effect. When rates rise, some homeowners are reluctant to sell and lose their current low mortgage rate just to take on a higher one for their next home.
So, with higher mortgage rates impacting both buyers and sellers, the supply and demand equation of the housing market has been affected. But since there are still more people who want to purchase homes than there are homes available to buy, prices continue to rise. As Freddie Mac states:
“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 . . .”
How This Affects You
For Buyers: If you've been delaying your home purchase out of fear that its value might decrease, knowing that home prices have rebounded should provide some reassurance. Buying a home gives you a chance to own something that usually becomes more valuable over time.
For Sellers: If you've been postponing the sale of your house due to concerns about the fluctuating home prices, now might be the right time to collaborate with a real estate agent and list your property. You don't have to wait any longer because the most recent data indicates home prices have turned in your favor.
If you put off moving because you were worried that home prices might go down, data shows they’re increasing across the country. Let’s connect so you can understand how home prices are changing in our local area.
Call award-winning listing agent, Teresa Ryan, at 630-276-7575, or email [email protected] for a complimentary no-obligation consultation today!
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