Why Home Prices Keep Going Up
Thursday Oct 26th, 2023
Why Home Prices Keep Going Up
If you've ever considered purchasing your own home or selling your current home to upgrade, you're familiar with the emotional rollercoaster that fluctuating home prices can create. It is a story of financial goals, uncertainty, and a touch of anxiety that many have experienced.
However, if you put off relocating out of concern that home prices will decline, you should know that they will not. In fact, the opposite is true. National data from many different sources indicate that they have increased consistently this year (see graph below):
This graph displays the following data. In the first half of 2022, property prices increased significantly (as indicated by the green bars on the left-hand side of the graphs). These increases were outrageous and unsustainable.
We then move through the second half of the year, where prices underwent a correction and began to decline (shown in red). However, these declines were minor and temporary. However, the media emphasized these drops in their headlines, causing widespread dread and confusion among consumers.
However, this is what has not been properly discussed. Since the beginning of 2023, prices have risen once more, but at a slower rate (the green bars on the right side of the graphs). And after excessive price gains and later corrections in 2022, the fact that all three reports indicate more normal or average price appreciation this year is positive for the housing market.
Senior Economist at Zillow, Orphe Divounguy, explains the change in property prices over the past year 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 growth tends to slow down around this time of the year. When that happens, there's a chance that the media will mix up slower price growth (also called deceleration of appreciation) with home prices going down (also called depreciation). Do not fall for it. Price rise that isn't as fast is still growth.
Why Are Home Prices Rising Currently?
One reason why home prices are increasing again is that there are still not enough properties for sale to meet the demand.
Even though higher mortgage rates moderate home buying demand, they also reduce the supply of available housing. This is due to the effect of mortgage rate lock-in. Some homeowners are reluctant to sell and lose their current low mortgage rate in order to obtain a higher one on their next home when interest rates rise.
With higher mortgage rates influencing both buyers and sellers, the housing market's supply and demand equation has been shifted. Since there are still more people looking to buy homes than there are available homes, prices are still rising. Freddie Mac says:
“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 does this affect you?
Buyers: If you've been delaying the purchase of a home out of concern that its value could decrease, you should feel easier knowing that home prices have increased again. Purchasing a home provides the opportunity to buy something that typically appreciates in value over time.
Sellers: If you've been delaying the sale of your home because you're concerned about how changing home prices will affect its value, it may be wise to hire a real estate agent and list your home. The latest data indicates that home prices have turned in your favor, so you no longer need to wait.
If you postponed your move out of concern that home prices would decline, you should know that they are on the rise across the nation. Let's connect so you know how the local housing market is evolving.