Unexpectedly strong home sales earlier this year reversed a sharp, multi-month decline in home prices. Mortgage rates swing behind.
Home prices nationwide rose 0.16% in February, when adjusted seasonally, according to Black Knight. This is the strongest one-month gain since May of last year. Home prices are now down 2.6% from their peak last June.
Of the 50 largest markets in the United States, 39 saw home prices rise in February. This is a quick turnaround from November, when prices were falling in 48 of the 50 markets.
Behind the rapid change are wide fluctuations in mortgage rates. The 30-year average fixed interest rate started to rise from a record low at the start of 2022. By June, it had gone from around 4% to just over 6%. Sales slowed, and prices followed. By the fall, the rate had risen to more than 7%, and home prices began to fall more rapidly.
However, in December and January, mortgage rates began to fall, and homebuyers rushed to take advantage. Closed sales of existing homes in February, which account for contracts signed in December and January, were up a significant 14.5%, according to the National Association of Realtors.
“As mortgage rates change, homebuyers benefit from any lower rates,” Lawrence Yoon, NAR’s chief economist, said in the February sales release.
As with all real estate, price dynamics vary by location. Miami continues to see the biggest price gains, along with more affordable markets in the Midwest, such as Cincinnati, Columbus, and Cleveland. Meanwhile, prices are still falling in some of the markets that have seen the biggest price inflation over the past several years. These include Austin, Las Vegas, Salt Lake City, Seattle, and San Francisco.
While mortgage rates have been the driving factor for the price shift nationally, tight supply is adding to the upward pressure, especially with new spring demand from buyers.
“The unfortunate reality is that the scarce supply of inventory that is the source of so much market inertia is not getting any better,” Andy Walden, Black Knight’s vice president of enterprise research strategy, said in the release.
The number of homes available for sale in February fell for the fifth consecutive month to the lowest level since May of last year, according to Black Knight. New listings were 27% lower than pre-Covid pandemic levels.
“While some of the price increases — most notably in Miami, which saw the largest increase during the month — can be attributed to people moving into the area, we are seeing stronger price gains overall in those areas with better affordability and shortfalls. Bigger in stock,” Walden added.
Mortgage rates started to rise again in February and then fell slightly in March due to market concerns about the US banking system, amid several bank meltdowns.
However, it appears that demand for homes has not been affected by the crisis, with real estate agents still reporting crowded open houses. Black Knight still expects prices to drop again over the remainder of this year, but if supply continues to drop, keeping competition strong, prices may not drop much.
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