Why Home Prices Keep Going Up

In your pursuit of realizing homeownership dreams or capitalizing on the sale of your current property to upgrade, you've likely experienced the rollercoaster of emotions triggered by fluctuating home prices. It's a narrative intertwined with financial aspirations, occasional doubts, and a touch of anxiety, an experience that resonates with many.

But if concerns about home prices falling have caused you to delay your move, it's time to reassess the situation. The prevailing reality tells a different story. In fact, it's quite the opposite. National data from various sources unequivocally confirms a consistent upward trajectory in home prices this year (refer to the graph below).

What the graph illustrates is remarkable. During the first half of 2022, home prices experienced a significant surge, represented by the green bars on the left side of the graph. These increases were indeed dramatic but unsustainable.

However, in the latter half of the year, prices underwent a necessary correction and exhibited a minor dip (shown in red). These modest declines were transient and shallow. Unfortunately, the media predominantly emphasized these temporary dips in their headlines, causing widespread fear and uncertainty among consumers.

What hasn't received ample attention is the fact that in 2023, home prices are once again on the rise. This time, the trajectory is more balanced and typical, as depicted by the green bars on the right side of the graph. Following the period of excessive price gains in 2022 and subsequent corrections, the current reports show that the housing market is experiencing a more normal or moderate rate of price appreciation this year, which is a positive indicator for the market's stability.

Orphe Divounguy, Senior Economist at Zillow, characterizes the shifts in home prices over the past 12 months in the following manner:

"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 forward, it's typical for home price appreciation to start moderating at this point in the year. As this deceleration occurs, there's a risk that the media may misinterpret it as home prices falling, even though it's simply a transition to slower but steady growth.

Why Are Home Prices Increasing Now?

The resurgence in home prices is attributed to the persistent shortage of available homes for sale. Despite the moderating effect of higher mortgage rates on buyer demand, they also reduce the supply of available homes. This phenomenon can be explained by the mortgage rate lock-in effect. When interest rates rise, some homeowners are reluctant to sell their homes and relinquish their current lower mortgage rates for the prospect of a higher rate on their next home.

As a result, the supply and demand equation in the housing market is impacted. Nevertheless, because there's still a greater number of potential buyers than there are homes available for sale, prices continue to rise. 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 Impacts You

For Buyers: If you've been holding off on your home purchase out of concern that home values might decrease, the resurgence in home prices should alleviate those worries. Acquiring a home offers you the opportunity to own an asset that traditionally appreciates over time.

For Sellers: If you've postponed selling your property due to apprehensions about changing home prices, it's a strategic move to collaborate with a real estate agent and list your home on the market. There's no need to wait any longer, as the latest data suggests that home prices are currently working in your favor.

Bottom Line

If apprehensions about declining home prices have delayed your housing plans, it's time to reevaluate your strategy. Data indicates that home prices are consistently increasing nationwide. Let's connect, so you can gain insights into how home prices are evolving in our local area. Your dream home may be within closer reach than you think.

For additional information and resources, please visit our website:

• Maura's Website
• Home Valuation Tool
• Market Report Tool
• Maura's Book on How to Sell Your Home