Recent data suggests that the rate at which home prices are increasing is beginning to slow down. In the United States, home prices only saw a 0.6% increase from the previous month in February. This growth aligns with the average monthly gain of 0.6% that was observed for approximately eight years leading up to the Covid-19 pandemic. Daryl Fairweather, the chief economist at Redfin, explained that prior to the pandemic, it was typical for prices to rise by about half a percent each month, which translates to an annual increase of 5% to 6%. Despite the current higher mortgage rates, Fairweather noted that the market seems to be reverting back to this pre-pandemic trend.
Matthew Walsh, an assistant director and economist at Moody’s Analytics, highlighted that the House Price Index from Moody’s Analytics also reflects a similar trend of appreciating home prices at the same pace as before the pandemic. However, experts emphasize that the current housing market is markedly different from conditions observed two to eight years ago. Although there has been a slight improvement in inventory, it remains insufficient to meet the demands of potential buyers. Fairweather shared that feedback from agents indicates dissatisfaction among both sellers and buyers in the present market scenario.
While the housing market has stabilized in terms of price growth, key disparities are evident when comparing the current period to the pre-pandemic era. One significant deviation lies in the limited number of transactions occurring, largely attributed to the presence of elevated mortgage rates. Fairweather highlighted that even with a recent surge in transactions data for February, the overall level remains at “recessionary lows.” Additionally, the constrained supply of homes contributes to the challenges faced by buyers in the current market landscape.
Factors such as mortgage rates, limited supply, and the seasonality of listing homes play a pivotal role in influencing sales and available inventory. The rise in new listings by 5% during the last four weeks ended March 17, as reported by Redfin, indicates a slight recovery in supply. However, Fairweather noted that this uptick is more of an incremental improvement rather than a complete return to pre-pandemic levels. The effect of the mortgage rate lock-in, where homeowners with low mortgage rates are reluctant to sell due to higher interest rates, is gradually diminishing.
Experts project a modest decline in mortgage rates for the year as the Federal Reserve considers reducing interest rates. Walsh anticipates that home prices are likely to remain stable at a national level. New-home sales have been performing well, with averages hovering around 600,000 per month, a rate similar to pre-pandemic levels. The new-home market is benefitting from the frustration of buyers contending with tight supplies in the existing home market. Homebuilders are able to offer unique incentives such as mortgage rate buydowns or price reductions, yet challenges in addressing the housing supply deficit persist.
While the housing market appears to be stabilizing in terms of price growth, several lingering challenges remain. The interplay of mortgage rates, supply constraints, and buyer preferences will continue to shape the trajectory of the market in the coming months. By closely monitoring these factors and adapting strategies accordingly, stakeholders can navigate the evolving landscape of the housing market.
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