What’s happening with home prices? Mortgage rates, tight supply are

On Oct 4, 2022

Daniel Acker | Bloomberg | Getty Images

Home prices are softening in most markets across the nation.

Yet home prices are still higher compared with a year ago, and it’s unlikely they will fall too steeply.

The sharp rise in mortgage rates over the past several months has made housing more expensive for anyone needing a loan. While that has some buyers pulling back, and some sellers lowering what they’re asking for, strong demand and tight supplies are supporting prices.

Recent reports are using monthly comparisons because of the sharp turnaround in the once-hot, pandemic-driven housing boom. So the changes can appear dramatic.

Black Knight, a real estate software, data and analytics firm, reported the second straight month of declines in August, with prices down 0.98% from July. It reported an upwardly revised 1.05% monthly decline in July. Put together, these mark the largest monthly declines in more than 13 years and the eighth largest since at least the early 1990s, Black Knight said.

“Either one of them would have been the largest single-month price decline since January 2009 – together they represent two straight months of significant pullbacks after more than two years of record-breaking growth,” Ben Graboske, Black Knight’s president of data and analytics, wrote in the report.

“The only months with materially higher single-month price declines than we’ve seen in July and August were in the winter of 2008, following the Lehman Brothers bankruptcy and subsequent financial crisis,” he added.

Despite all of these factors, it’s important to remember that real estate is also heavily influenced by local economic forces. It’s seasonal, too. Families tend to buy larger, pricier homes in the spring and summer, so they can move during between school years. That skews prices higher. Smaller, less-expensive homes tend to sell in the fall and winter, skewing prices lower. This is why home prices are usually compared year over year, to get the most accurate reading.

Cooling off

The average home price is now about 2%, or $8,800, off its June peak of $438,000. Black Knight reports prices are off their peaks in 97 of the 100 largest U.S. markets, but they’re still roughly 40% higher than they were in 2019, before the pandemic.

But the rate of growth is cooling. This week, CoreLogic reported that home prices were 13.5% higher in August than in the same month a year earlier. That is the lowest annual rate of appreciation since April 2021, according to the report. It partially reflects cooling buyer demand due to higher mortgage rates. CoreLogic expects these annual increases will continue to shrink, but will still show a gain of 3.2% by August of next year.

The National Association of Realtors, in its August home sales report, showed the median price of an existing home was up 7.7% year over year. Compare that to a 15% year over year gain just last May. The median is often skewed by the types of homes selling. After a boom in luxury home sales during the pandemic,…