Don’t Confuse Seasonal Shifts for Falling Home Prices
If you’ve been dreaming of buying a home or selling your current house to upgrade, the dramatic home price increases of the past few years probably feel intimidating. But if you put off moving because you’re worried home prices might drop, the data is not showing signs of falling prices.
In the first half of 2022, home prices rose significantly with increases that were dramatic and unsustainable. So, in the second half of the year, prices went through a correction and started dipping a bit during last fall and winter. But those slight declines were shallow and short-lived - in line with typical seasonal markets that are softer in the fall and winter. 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. Home price appreciation typically starts to ease up this time of year. As that happens, there’s some risk the media will confuse slowing price growth with home prices falling. But slower price growth is still growth.
Why Are Home Prices Increasing Now?
One reason why home prices are going back up is because there still are not enough homes for sale for all the people who want to buy them.
Even though higher mortgage rates cause buyer demand to moderate, they also cause the supply of homes to go down. That’s because of the “golden handcuffs” of low mortgages. When rates rise as they’ve done significantly this past year, some homeowners are reluctant to sell and lose their current low mortgage rate just to take on a higher one for their next home.
So, with higher mortgage rates impacting both buyers and sellers, the supply and demand equation of the housing market has been affected. But since there are still more people who want to purchase homes than there are homes available to buy, prices continue to rise. 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 waiting to buy because you were afraid its value might drop, knowing that home prices have gone back up should make you feel better. Buying a home allows you to own something that usually becomes more valuable over time.
Sellers: If you’ve been holding off on selling your house because you were worried about how changing home prices would impact its value, the most recent data indicates home prices are still in your favor.
If you put off moving because you were worried that home prices might go down, data shows they’re increasing overall.