Understanding the Upward Trajectory of Home Prices

Understanding the Upward Trajectory of Home Prices

For those who have harbored the dream of homeownership or contemplated selling their existing property for an upgrade, the ever-fluctuating realm of home prices can evoke a rollercoaster of emotions. It's a narrative interwoven with financial aspirations, uncertainties, and a hint of anxiety—a journey shared by many.

However, if concerns about a potential downturn have hindered your decision to move, it's vital to recognize that home prices are not heading in a downward direction. In fact, the contrary is true. National data from various sources unequivocally confirms a consistent upward trajectory in recent times.

The accompanying graph offers a visual representation of this phenomenon. The first half of 2022 witnessed a remarkable surge in home prices, illustrated by the conspicuous green bars on the left side of the graph. These increases were both substantial and, it was later determined, unsustainable.

Consequently, during the latter half of the year, prices experienced a necessary correction, displaying a modest dip (depicted in red). Regrettably, these minor declines garnered significant attention in the media, sowing seeds of fear and uncertainty among consumers.

Yet, there's an aspect that hasn't received its due share of coverage. Thus far in 2023, home prices are once again on the rise, albeit at a more moderate pace, as indicated by the green bars on the right side of the graph. Following the soaring price gains and subsequent corrections of 2022, the fact that all three reports are now indicating a more typical rate of price appreciation in 2023 bodes well for the housing market.

Orphe Divounguy, Senior Economist at Zillow, offers this perspective on 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. . ."

Looking ahead, it's worth noting that home price appreciation typically begins to taper during this time of the year. Consequently, there is a risk that the media may misinterpret the deceleration of price growth as a sign of falling home prices. It is important not to be misled; slower price growth still represents growth.

Why Are Home Prices Increasing Now?

One of the primary reasons behind the resurgence in home prices is the persistent scarcity of available homes for the multitude of eager buyers.

Even though elevated mortgage rates have tempered buyer demand, they have also led to a reduction in the supply of homes for sale, driven by the mortgage rate lock-in effect. As interest rates rise, some homeowners become reluctant to sell, as they would forfeit their existing favorable mortgage rates in exchange for higher ones on their next property.

Consequently, the interplay of rising mortgage rates affecting both buyers and sellers has influenced the supply-demand dynamics of the housing market. However, given the persistent excess of prospective buyers over available homes, prices persist in their ascent. In the words of Freddie Mac: "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 of price depreciation, the knowledge that home prices are resuming their upward trajectory should provide a sense of reassurance. Acquiring a home offers the opportunity to own an asset that traditionally appreciates over time.

For Sellers: If you've been holding off on selling your property due to concerns about fluctuating home prices, now might be an opportune moment to collaborate with a real estate agent and list your home on the market. The most recent data suggests that home prices are currently working in your favor.

In Conclusion
If apprehensions about declining home prices have caused you to delay your housing decisions, it's essential to recognize that the data unequivocally indicates an ongoing rise in home prices across the nation. To gain a comprehensive understanding of how home prices are evolving in your specific locality, it is advisable to consult with a local real estate agent.