Why Home Prices Keep Surging: What You Need to Know

The dream of buying a home or upgrading to a new one can be an emotional rollercoaster, especially when it comes to changing home prices. It's a journey filled with financial goals, doubts, and a sprinkle of anxiety that many of us have experienced. But if you've been holding off on your housing plans, fearing a potential price drop, it's time to reconsider. Home prices aren't going down; in fact, they're doing just the opposite.

National data from various sources confirms that home prices have been consistently rising this year. Here's a closer look at the numbers:

The graph illustrates the recent trend in home prices. In the first half of 2022, home prices experienced significant increases, depicted by the green bars on the left side of the graph. These increases were remarkable but unsustainable.

However, in the second half of 2022, prices underwent a correction, leading to a slight dip (shown in red). Unfortunately, the media predominantly highlighted these declines in their headlines, sowing fear and uncertainty among consumers.

What hasn't received enough attention is that in 2023, home prices are once again on the rise, albeit at a more typical pace (illustrated by the green bars on the right side of the graph). After the excessive price gains and subsequent corrections in 2022, the fact that all three reports now show more normal price appreciation is positive news for the housing market.

Orphe Divounguy, Senior Economist at Zillow, explains the changing home prices over the past 12 months:

“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.”

As we move forward, it's typical for home price appreciation to slow down this time of year. During this period, there's a risk that the media might misconstrue slower price growth as falling home prices. It's essential not to be misled; slower price growth still signifies growth.

Why Are Home Prices Increasing Now?

The resurgence of home prices can be attributed to the persistent shortage of homes available for sale compared to the high demand from potential buyers. Even though higher mortgage rates have moderated buyer demand, they have also contributed to a decrease in the supply of available homes. This phenomenon can be explained by the mortgage rate lock-in effect. When interest rates rise, some homeowners are hesitant to sell and lose their current low mortgage rate in favor of a higher one for their next home.

Consequently, with higher mortgage rates impacting both buyers and sellers, the housing market's supply and demand dynamics have shifted. However, because there are still more potential buyers than available homes, prices continue to climb. Freddie Mac points out:

“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...”

What Does This Mean for You?

For Buyers: If you've been postponing your home purchase due to concerns about declining property values, the recent upswing in home prices should provide some reassurance. Buying a home presents an opportunity to own an asset that historically appreciates over time.

For Sellers: If you've been delaying the sale of your property out of apprehension regarding fluctuating home prices, it's time to consider working with a real estate agent and listing your home. Recent data suggests that home prices are now in your favor.

If you've been hesitating to make a move in the real estate market due to fears of falling home prices, the data indicates that prices are, in fact, on the rise nationwide. To gain a better understanding of how home prices are evolving in your local area, it's advisable to connect with a real estate professional who can provide insights tailored to your specific situation. Don't let misconceptions about home prices hold you back from pursuing your housing goals.

Disclaimer: The information provided in this article is for general informational purposes only and should not be considered as professional advice. It's recommended to consult with a qualified real estate professional or financial advisor for personalized guidance.