Why home prices keep going up

The dream of buying real estate for the first time or selling a beloved home to upgrade often comes with a rollercoaster of emotions when changing homes enter into the equation.  Many people understand what it feels like to experience doubts and anxiety in the pursuit of financial goals amidst a fluctuating home market.

Putting off moving due to a concern that home prices might drop belies the facts. National data from several sources confirms that prices went up consistently this year.

As revealed in the graph above, home prices rose significantly (the green bars on the left side of the graphs above) during the first half of 2022.  While dramatic and unsustainable increases led to a correction and prices started dipping a bit (shown in red) during the second half of the year, those modest declines proved short-lived.  Despite such brevity, the media focused on those drops in their headlines which created a lot of fear and uncertainty among consumers.

The full story warrants attention. So far in 2023, prices continue to rise; notably, at a more normal pace (the green bars on the right side of the graphs above). On the heels of uncharacteristically rapid price gains and the subsequent corrections that followed in 2022, the fact that all three reports show more normal or typical price appreciation this year bodes well 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 ahead, 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 (deceleration of appreciation) with home prices falling (depreciation). Don’t be fooled – 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 available homes to decrease. That’s because of something called the “mortgage rate lock-in effect”. When rates rise, 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 a home because you were afraid its value might drop, knowing that home prices have gone back up might make you feel better.  Buying a home gives you a chance to own something that nearly always 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, it could be a smart move to work with a real estate agent and put your house on the market. You don’t have to wait any longer because the most recent data indicates home prices have turned in your favor.

If you put off moving because you were worried that home prices might go down, data shows they’re increasing across the country. Let’s connect if you are considering a move and would like to discuss detailed information about how home prices are changing in our local area, please contact me at 941.266.0529 or email me at stacyhanan@michaelsaunders.com. I look forward to discussing your real estate goals with you.