If you’re on the lookout to purchase a home at the bottom of the market, it appears that is behind us for the foreseeable future. As predicted by most industry experts, as soon as mortgage rates dipped even slightly, the backlog of demand reflected in the uptick of mortgage applications since late 2022, would collide with tight housing inventory and home prices would launch their Spring ascent.
Slowing Gains vs Declining Prices
Semantics seem to be causing some buyers to believe home prices are dropping. While year over year increases have slowed, according to the S&P CoreLogic Case-Shiller U.S. National Home Price Index, annual gains in home prices for January of 2023 were 3.8% compared to the previous month of 5.6%. While month over month and year over year gains are down, home prices are not falling nationwide nor are they predicted to.
As of December 2022, annual home price growth was 6.9% year over year down from the unnatural pace of 20% earlier in the year. The single state to report annual home price declines in December 2022 was Idaho at -1%. Factor in Idaho’s April 2022 record gain of 17%, and it is clear that market is also shifting back to a more normal pace, not plummeting. (Source: Black Knight Data & Analytics; April 3, 2023)
Don’t mistake the end of price acceleration as a market decline. It is actually a market recovery as we return to more realistic pricing and a hope of improved affordability moving forward.
Home Prices Up
Home prices rose in 39 of the 50 largest markets in February climbing 0.16%, the strongest single month gain since May of 2022. Demand has been simmering since January, rates have dipped, but inventory remains stubbornly low at approximately 563,000 active listings, down week over week. With an estimated demand of 1.2M homes needed for the spring buying season, the shortfall in supply is predicted to keep home prices on the upward climb.
There is no clear answer to the question, did you miss the bottom of the housing market. If you read our December article forecasting January and February as the calm before the Spring storm and purchased a home, you may well have capitalized on the bottom. If you’re on the sidelines waiting for the bottom to fall out, no expert forecasts or supporting data make that a 2023 or 2024 reality.
2023 Home Price Forecast
Moody’s CoreLogic forecasts a 3.0.% annual year over year growth in home prices for 2023. Zillow is slightly more optimistic at a 3.5% year over year increase in home prices. Finally, a forecast that more closely aligns with our 60 year average of 4.9% annual home price leaving the spikes and drops of our last two years firmly behind us.
Could our market be approaching recovery? An increase in homes listed, and uptick in new home starts combined with a continued calming of inflation and we can take a deep breath. We are not solidly in that space as of this date. If you need to purchase a home, this is your heads up, the upward price momentum has begun. Mortgage rates may dip further but I would caution waiting for that maybe. Purchase price is a bigger factor in cost of ownership than small fluctuations in mortgage rates. A rate buydown or future refinance could remove the final obstacle and green light a new home purchase.
