What’s going on with house prices? Mortgage rates and tight supply are factors

Daniel Acker | Bloomberg | Getty Images

Home prices are falling in most markets across the country.

Yet home prices are still higher than a year ago, and are unlikely to fall too sharply.

The sharp rise in mortgage rates in recent months has made housing more expensive for anyone in need of a loan. Although some buyers are pulling back and some sellers are cutting back on their asking, strong demand and tight supplies are supporting prices.

Recent reports use monthly comparisons due to the sharp turnaround in the once-hot, pandemic-driven housing boom. So the changes can seem dramatic.

Black Knight, a real estate software, data and analytics company, reported the second straight month of declines in August, with prices down 0.98% from July. It reported an upward-revised monthly decline of 1.05% in July. Together, those declines mark the largest monthly declines in more than 13 years and the eighth since at least the early 1990s, Black Knight said.

“Either would have been the biggest one-month price decline since January 2009 – together they represent two consecutive months of significant declines after more than two years of record growth,” said Ben Graboske, chairman of the data and analytics at Black Knight. , written in the report.

“The only months with significantly higher month-to-month price declines than we saw in July and August were in the winter of 2008, following the Lehman Brothers bankruptcy and subsequent financial crisis,” said he added.

Despite all of these factors, it is important to remember that real estate is also heavily influenced by local economic forces. It’s seasonal too. Families tend to buy larger, more expensive homes in the spring and summer, so they can move between school years. This drives up the prices. Smaller, cheaper homes tend to sell out in the fall and winter, driving prices down. This is why house prices are usually compared year over year, to get the most accurate reading.


The average home price is now about 2%, or $8,800, from its June high of $438,000. Black Knight reports that prices are off their highs in 97 of the 100 largest U.S. markets, but are still about 40% higher than they were in 2019, before the pandemic.

But the growth rate is slowing down. This week, CoreLogic reported that home prices were 13.5% higher in August than the same month a year earlier. This is the lowest annual appreciation rate since April 2021, according to the report. This partly reflects slowing demand from buyers due to rising mortgage rates. CoreLogic expects these annual increases to continue to decline, but will still post a 3.2% gain by August next year.

The National Association of Realtors, in its August home sales report, showed the median price of an existing home rose 7.7% year-over-year. Compare that to a 15% year-over-year gain last May. The median is often skewed by the types of houses sold. After a boom in luxury home sales during the pandemic, sales of more expensive homes fell in August. This may explain at least part of the smaller annual gain.

Estate agents noted, however, that while house prices traditionally fall from July to August, this year they have fallen at three times the normal rate.

Some markets soften faster than others. According to Black Knight, some of the markets that are seeing the biggest declines are some of the most expensive in the past, such as San Jose, San Francisco and Seattle. These markets are the hardest hit by rising mortgage rates because they were so unaffordable to begin with.

Other markets seeing steep declines are those that have seen the biggest surge in demand during the pandemic, such as Phoenix and Las Vegas. With the ability to work from anywhere, people flocked to these comparatively more affordable markets where the climate was perhaps friendlier. This surge in demand fueled prices.

Strong price gains hold in Florida markets, which continue to see strong demand due to the shift of many tech workers from Silicon Valley to the Sun Belt during the pandemic.

Tighter supply pushes prices up

House prices are unlikely to fall dramatically as they did during the Great Recession caused by the financial crisis, as there is far more demand than supply.

Before the pandemic, supplies were low due to a decade of underbuilding following the Great Recession. Furious home buying during the pandemic has only exacerbated this shortage. This imbalance of supply and demand has driven home prices up more than 40% in just two years.

There are also fewer vendors. They see the market weakening and some don’t want to get less for their home than they think it deserves.

“Right now, potential sellers are not only faced with falling demand and falling prices due to the sharp rise in interest rates, but they are also increasingly dissuaded from giving up. their own mortgages at historically low rates in this environment. Some may be waiting in the market to see if demand — and prices — come back in the spring,” Graboske said.

There is about three months of supply in the existing market, which is about half of what is considered a balanced market. There is more supply in the new home market, but new construction is priced higher and buyers are now facing higher mortgage rates. Affordability is still at one of the worst levels in history, despite a slight drop in prices.

What most experts seem to agree on is that this is not a “normal” real estate market or even a normal price correction. Inflation, global economic uncertainty, rising mortgage rates and the still tight supply of homes for sale are weighing on potential buyers. It remains to be seen to what extent they will pull back and to what extent that pullback will cool prices.


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