Why Are Home Prices Rising?
If you've ever dreamed about owning your own home or selling your present one to renovate, you're no stranger to the emotional rollercoaster that fluctuating housing values can cause. It's a familiar story of financial ambitions, worries, and anxiety.
But if you're putting off moving because you're worried about home prices dropping, make no mistake: they're not going down. In reality, it's just the opposite of that. National data from several sources says they’ve been going up consistently this year (see graph below):
Here’s what this graph shows. In the first half of 2022, home prices rose significantly (the green bars on the left side of the graphs above). Those increases were dramatic and unsustainable.
So, in the second half of the year, prices went through a correction and started dipping a bit (shown in red). But those slight declines were shallow and short-lived. Still, the media really focused on those drops in their headlines, and that created a lot of fear and uncertainty among consumers.
But here’s what hasn’t been covered fully. So far in 2023, prices are going up once more, but this time at a more normal pace (the green bars on the right side of the graphs above). And after price gains that were too high and then the corrections that followed in 2022, the fact that all three reports show more normal or typical price appreciation this year is good news for the housing market.
Orphe Divounguy, Senior Economist at Zillow, explains changing home prices over the past 12 months this way:
“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, house price appreciation usually begins to slow around this time of year. As this occurs, there is a risk that the media will confuse a slower price rise (deceleration of appreciation) with declining house values (depreciation). Don't be duped. Price rises at a slower pace are still growing.
Why Are Home Prices Increasing Now?
One reason housing prices are rising again is because there aren't enough properties for sale to accommodate everyone who wants to buy them.
Although rising mortgage rates reduce buyer demand, they also reduce the quantity of available properties. The reason for this is the mortgage rate lock-in impact. When interest rates rise, some homeowners are hesitant to sell their present house and forfeit their current cheap mortgage rate in order to take on a higher one for their next property.
As a result of increasing mortgage rates affecting both buyers and sellers, the housing market's supply and demand dynamic has been impacted. However, because there are still more individuals looking to buy houses than there are available, prices continue to climb. As Freddie Mac states:
“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 . . .”
Here’s How This Impacts You
- Buyers: If you've been putting off buying a home because you were scared the value might fall, hearing that home prices have risen should make you feel better. Purchasing a home allows you to possess something that often increases in value over time.
- Sellers: If you've been putting off selling your home because you're concerned about how shifting home prices will affect its worth, it could be a good idea to consult with a real estate agent and list your property. You don't have to wait much longer because new data shows that housing prices have shifted in your favor.
If you held off relocating because you were concerned that property prices might fall, facts show that they are rising across the country. Let's talk so you can understand how property values are changing in our neighborhood.