After a record-breaking run in which home values shot to new heights and mortgage rates plunged to historic lows, the housing market eventually started cooling in late 2022. The “housing recession” was lamented by real estate economists, there were widespread layoffs at lending companies, and a decline in property values was likely.
On the way to the housing crisis, though, an unexpected thing happened: home values started to rise once more. Housing prices have increased for four straight months, according to the most recent Case-Shiller home price index. According to the National Association of Realtors (NAR), more than half of U.S. metro areas had an increase in home prices in the second quarter of 2023, which is just another sign that price increases will continue.
The NAR statement that existing home median sale prices have decreased year over year for five consecutive months through June has an asterisk next to it. Despite a slight drop in home prices between June 2022 and June 2023, this month’s median price of $410,200 was still the second-highest monthly figure ever tracked by the NAR, only behind last June’s $413,800.
Home values have remained constant even if mortgage rates have surpassed 7%. The lack of available housing is the issue. Both inventory shortages and bidding wars have returned.
Senior economist at Zillow Skylar Olsen agrees that supply and demand are out of balance. Her most recent forecast indicates that property prices would grow further until 2024, which is wonderful for sellers but poor news for first-time homebuyers. Olsen thinks that the time has not yet come for prices to abruptly fall.
However, a significant slowdown in home sales and a sharp rise in mortgage rates have some people bracing for the worst. Following the Federal Reserve meeting on June 14, Fed Chairman Jerome Powell told reporters he was closely watching the housing market.
All housing-focused analysts and economists agree that any market changes will likely be minor. The magnitude of the price drops that have taken place was not anticipated.
Is the US housing market about to crash?
The last time the U.S. home market looked bouncy was between 2005 and 2007. Back then, the drop in housing values had disastrous effects. When the real estate bubble burst, the global economy experienced its greatest decline since the Great Depression. Is the property market about to fall, as buyers and homeowners have long wondered? Increasing mortgage rates and an impending recession are posing challenges to the housing boom; Bankrate’s most recent expert survey put the chance of a recession at 59 percent.
Although economists who study housing agree that prices may fall even more, this time, the decline won’t be as sharp as it was during the Great Recession. One obvious difference between now and then is that the homeowners’ personal balance sheets today are substantially stronger than they were fifteen years ago. A June Redfin analysis found that 82.4 percent of all existing homeowners have fixed-rate mortgages with interest rates under 5 percent. The average mortgaged homeowner has outstanding credit, a large amount of home equity, and a mortgage locked in at a rate significantly lower than 5%.
Additionally, builders have been cautious about their pace of construction since they all too well recall the Great Recession. As a result, there need to be more houses available for purchase.
Existing home prices
The housing market will eventually cool as home values succumbed to their own success, according to long-held projections made by experts. The NAR reports that the median sale price of a single-family home fell annually by 0.9 percent in June after decreasing for the first time in more than ten years in February.
In contrast, property values have generally risen far more quickly than wages. Since August 2021, mortgage rates have more than doubled, making the affordability crisis worse.