Don’t Let the Latest Home Price Headlines Confuse You

Based on what you’re hearing in the news about home prices, you may be worried they’re falling. But here’s the thing. The headlines aren’t giving you the full picture. If you look at the national data for 2023, home prices actually showed positive growth for the year. While this varies by market, and while there were some months with slight declines nationally, those were the exception, not the rule. The overarching story is that prices went up last year, not down. Let’s dive into the data to set the record straight.  2023 Was the Return to More Normal Home Price Growth If anything, last year marked a return to more normal home price appreciation. To prove it, here’s what usually happens in residential real estate. In the housing market, there are predictable ebbs and flows that take place each year. It’s called seasonality. It goes like this. Spring is the peak homebuying season when the market is most active. That activity is usually still strong in the summer, but begins to wane toward the end of the year. Home prices follow along with this seasonality because prices grow the most when there’s high demand. The graph below uses data from Case-Shiller to show how this pattern played out in home prices from 1973 through 2022 (not adjusted, so you can see the seasonality):     As the data shows, for nearly 50 years, home prices match typical market seasonality. At the beginning of the year, home prices grow more moderately. That’s because the market is less active as fewer people move in January and February. Then, as the market transitions into the peak homebuying season in the spring, activity ramps up. That means home prices do too. Then, as fall and winter approach, activity eases again and prices grow, just at a slower rate. Now, let’s layer the data that’s come out for 2023 so far (shown in green) on top of that long-term trend (still shown in blue). That way, it’s easy to see how 2023 compares.   As the graph shows, moving through the year in 2023, the level of appreciation fell more in line with the long-term trend for what usually happens in the housing market. You can see that in how close the green bars come to matching the blue bars in the later part of the year. But the headlines only really focused on the two bars outlined in red. Here’s the context you may not have gotten that can really put those two bars into perspective. The long-term trend shows it’s normal for home prices to moderate in the fall and winter. That’s typical seasonality. And since the 49-year average is so close to zero during those months (0.10%), that also means it’s not unusual for home prices to drop ever so slightly during those times. But those are just blips on the radar. If you look at the year as a whole, home prices still rose overall. What You Really Need To Know Headlines are going to call attention to the small month-to-month dips instead of the bigger year-long picture. And that can be a bit misleading because it’s only focused on one part of the whole story. Instead, remember last year we saw the return of seasonality in the housing market – and that’s a good thing after home prices skyrocketed unsustainably during the ‘unicorn’ years of the pandemic. And just in case you’re still worried home prices will fall, don’t be. The expectation for this year is that prices will continue to appreciate as buyers re-enter the market due to mortgage rates trending down compared to last year. As buyer demand goes up and more people move at the same time the supply of homes for sale is still low, the upward pressure on prices will continue. Bottom Line Don’t let home price headlines confuse you. The data shows that, as a whole, home prices rose in 2023. If you have questions about what you’re hearing in the news or about what’s happening with home prices in our local area, let’s connect.

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Experts Project Home Prices Will Increase in 2024

Even though home prices are going up nationally, some people are still worried they might come down. In fact, a recent survey from Fannie Mae found that 24% of people think home prices will actually decline over the next 12 months. That means almost one out of every four people are dealing with that fear, and you might be, too. To help ease that concern, here's what experts forecast will happen with prices this year. Experts Project a Modest Increase Check out the latest home price forecasts from eight different sources (see graph below):   The blue bar on the left means, on average, experts think home prices will go up over 2% by the end of this year – not down. Prices aren’t likely to depreciate in 2024 because inventory is still tight and lower mortgage rates are leading to strong buyer demand. Those two factors will keep pushing prices up as the year goes on. As Selma Hepp, Chief Economist at CoreLogic, explains: “With mortgage rates dropping, demand for homes in early 2024 is likely to be strong and will again put pressure on prices, similar to trends observed in early 2023 . . . Most markets will continue to reach new home price highs over the course of 2024.” What Does This Mean for You? Experts are saying home prices will go up this year, and that's good news if you're thinking about buying a home. When you become a homeowner, you want the value of your house to go up. That appreciation is what builds equity and makes homeownership such a good investment over time. Beyond that, expected home price appreciation also means if you’re ready, willing, and able to buy, waiting just means it will cost more later.  Bottom Line If you're worried home prices will come down, don’t be. Many experts believe they’ll actually go up this year. If you have questions or worries about what’s happening with prices in our area, let’s connect.

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3 Key Factors Affecting Home Affordability

Over the past year, a lot of people have been talking about housing affordability and how tight it’s gotten. But just recently, there’s been a little bit of relief on that front. Mortgage rates have gone down since their most recent peak in October. But there’s more to being able to afford a home than just mortgage rates. To really understand home affordability, you need to look at the combination of three important factors: mortgage rates, home prices, and wages. Let’s dive into the latest data on each one to see why affordability is improving. 1. Mortgage Rates Mortgage rates have come down in recent months. And looking forward, most experts expect them to decline further over the course of the year. Jiayi Xu, an economist at Realtor.com, explains: “While there could be some fluctuations in the path forward … the general expectation is that mortgage rates will continue to trend downward, as long as the economy continues to see progress on inflation.” And even a small change in mortgage rates can have a big impact on your purchasing power, making it easier for you to afford the home you want by reducing your monthly mortgage payment. 2. Home Prices The second important factor is home prices. After going up at a relatively normal pace last year, they’re expected to continue rising moderately in 2024. That’s because even with inventory projected to grow slightly this year, there still aren’t enough homes for sale for all the people who want to buy them. According to Lisa Sturtevant, Chief Economist at Bright MLS: “More inventory will be generally offset by more buyers in the market. As a result, it is expected that, overall, the median home price in the U.S. will grow modestly . . .” That’s great news for you because it means prices aren’t likely to skyrocket like they did during the pandemic. But it also means it’ll probably cost you more to wait. So, if you’re ready, willing, and able to buy, and you can find the right home, purchasing before more buyers enter the market and prices rise further might be in your best interest. 3. Wages Another positive factor in affordability right now is rising income. The graph below uses data from the Federal Reserve to show how wages have grown over time:    If you look at the blue dotted trendline, you can see the rate at which wages typically rise. But on the right side of the graph, wages are above the trend line today, meaning they’re going up at a higher rate than normal. Higher wages improve affordability because they reduce the percentage of your income it takes to pay your mortgage. That’s because you don’t have to put as much of your paycheck toward your monthly housing cost. What This Means for You Home affordability depends on three things: mortgage rates, home prices, and wages. The good news is, they’re moving in a positive direction for buyers overall. Bottom Line If you're thinking about buying a home, it's important to know the main factors impacting affordability are improving. To get the latest updates on each, let's connect.

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