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Friday, February 24, 2023

Home Prices Are Going Up–And What That Means For You

Home prices going up

Home Prices Are Going Up–And What That Means For You

High interest rates. Questions about housing inventory. Inflation potentially pointing to even higher interest rates. Read the headlines, and you’d expect the average mortgage cost to increase throughout 2023. If mortgages are more difficult to afford, you’d think market activity would slow, inventory would rise, and homeowners can only entice buyers by cutting their list prices.

That’s not necessarily what we’re seeing in the markets. House prices rose in 90% of markets during 2022, according to a National Association of Realtors report. Take a closer look at why 2023 is bucking the trend and what markets are reporting the most significant home price growth.

Buying a home still getting more expensive

home prices going up

First, let’s establish what the numbers are doing. According to MPA, Q4 2022 saw national median single-family home prices increase by 4% to $378,000. Lawrence Yun, the chief economist for NAR, noted that since 2019, home prices have increased by 42%. However, wage increases and consumer price inflation increases (up 15% and 14%, respectively, between 2019-2022) show that housing prices are eclipsing the overarching economic market.

With 4% pricing gains, it’s showing a welcome slowdown in home price growth. Fewer markets are reporting double-digit increases.

However, the statistics on housing affordability are a little bit different. Rather than look at raw price numbers, housing affordability includes family incomes, mortgage rates, and the estimated monthly payments those mortgage rates require.

In the fourth quarter of 2022, housing affordability struggled. Since mortgage rates have approximately doubled since January of 2022, there simply wasn’t much wiggle room in individual budgets. The MPA found that monthly payments for first-time homebuyers seeking a starter home increased 57% year-over-year because of interest increases. That amount definitely is not keeping pace with wage growth.

A family planning for a 10% down mortgage would need an income stream of at least $100,000 in 71 markets, an increase of 59 from the data in the previous quarter.

So it’s not just housing prices that home buyers have to worry about. Housing affordability factors in additional economic conditions like wages and mortgage rates.

Inflation and mortgage rates remain a concern

FED inflation and Mortgage rates

The Federal Reserve’s control over interest rates is one of the primary drivers for what home buyers can expect to see in mortgage costs. The higher the Federal Reserve sets its interest rates, the higher buyers can expect to see mortgage interest rates in the succeeding weeks.

After a year of rampant inflation, which saw interest rates going up by large chunks at a time, (sometimes by 0.75%, as was the case four times in 2022), the trend has continued into 2023.

In January/February (the meeting overlapped both months), the Federal Reserve opted to increase interest rates by another 0.25%. This was slower than the 0.50% increase in December 2022 but still shows that the Fed has serious concerns about curbing inflation.

This means that in 2023, housing affordability may become even more difficult than at the end of 2022, particularly if inflation keeps at its current levels. But that doesn’t mean people in every region should expect to see the same result filtering through their local housing market.

The South reports the highest price growth

Anyone who’s ever moved from a major metropolitan area to a rural region knows how different the housing prices can look. That fact reverberates through the data, with other regions showing separate overall trends in housing prices.

The MPA data shows the South is the price appreciation leader, with 4.9% year-over-year price appreciation. Compare that to 5.3% in the Northeast, 4.0% in the Midwest, and 2.6% in the West, and you see that not all areas are experiencing price growth equally.

Three of the top-growing states fell within our service area. Real estate market data showed home prices in Florida had the most significant price increases over the previous year at 19.9%.

The Carolinas followed on Florida’s heels. South Carolina rose almost 19.2% over the past year, good enough for the second-highest price increase nationwide. North Carolina wasn’t far behind, ranking fifth with a 15.7% price increase. These states highlight just how in-demand housing is across the southeast.

In particular, the data indicates Charlotte has been one of the fastest-rising housing markets in recent years. While that’s great for sellers and potentially for the local economy, it translates to sky-high housing prices. North Carolina currently edges out South Carolina in home prices, with an average price of $329,634 vs. South Carolina’s $300,667.

The overall trends of home prices indicate what you can expect in either direction, yes. Still, you may find that the real estate market in your nearest metro area might be significantly hotter or cooler compared to these national in-demand markets.

What Comes Next in Home Prices in 2023

a real estate broker in front of a crystal ball predicting the home price

Housing affordability will continue to be a struggle for home buyers this year. Although the Federal Reserve has maintained a lighter touch with interest rates going into 2023, housing affordability may face challenges as many markets are experiencing a limited supply. In Yun’s opinion, stabilizing interest rates will bring buyers back to the market, which will further stress housing prices.

If you’re waiting to buy a home to see what prices do, remember: prices are going up, and when they fall, they tend to fall slowly.

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Preston Guyton

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