U.S home prices break a seven-month streak of decline

A report released by the Black Knight Home Price Index found that U.S home prices experienced a 0.16% increase in the month of February; this is the largest one-month gain since May 2022 (Black Knight). Despite the conclusion of a seven-month decline in housing prices, homeowners and homebuyers should still expect prices to continue to fall in 2023 and 2024.?

Small Market Movements

The real estate world has suffered greatly ever since the end of the pandemic-driven housing boom, but February has given many a small— and arguably false— glimmer of hope.? This past November, home prices fell in 48 of the 50 largest U.S markets, and reversed this February as 39 of the 50 markets saw home prices rise slightly.?

The movement in median home prices has not been noticeable. “Nationwide, the median single-family home, and condo value of $320,000 in the first quarter of 2023 is virtually the same as the typical $318,000 price in the fourth quarter of 2022 and is up just 1.3 percent from $316,000 in the first quarter of last year” (ATTOM Team).?

The U.S annual home price growth rate is expected to fall below 0% by April, but if interest rates begin to dip, prices may have a chance at growth. Interest rates are still sidelining buyers and sellers across the country. Last week, mortgage purchase applications were down 35% on a year-over-year basis.?

East vs. West

Although U.S home prices as a whole are struggling to grow, the East and West are becoming very different markets. Miami, FL, for example, has seen a 12% increase in home prices from January 2022 to January 2023; in contrast, home prices across the country in San Jose, CA have seen a 10.5% decrease in home prices (Nicholson).

In the West, home prices “have enjoyed long price run-ups since the 1990s, when the rapid growth of the technology industry fueled a housing market boom. Now, the cities most closely associated with tech have the fastest falling home prices” (Friedman). In contrast, states in the Eastern half of the U.S are continuing to attract companies and add jobs, thus attracting out-of-state buyers and making homes much more pricey.

Cities such as Los Angeles and San Francisco have had historically high home prices, and rising interest rates have made these homes even less affordable, resulting in price cuts across the West Coast.?

Housing Market Forecast?

High borrowing rates are expected to continue to lower prices and diminish buyer demand, but occasional downturns in rates will lead to upward spikes in transactions. Due to tighter affordability in today’s market, prices will most likely continue to be cut; this presents a silver lining to investors and homebuyers. Although mortgage rates are higher than recent years, homes are selling for cheaper, and once rates improve, you can refinance your mortgage.?

Refinancing is the process of replacing your existing mortgage, often to get a better rate and save money. This process is nearly identical to the original mortgage application process of finding a lender, getting pre-approved for a mortgage after a credit check/risk assessment, and closing.?

Here are some benefits to refinancing your loan:

1. You can get a lower interest rate.

• As rates undergo random cuts in certain weeks by the Fed, you can refinance during these times and pay a lower monthly fee.

2. You can switch the type of loan you currently have.

• If you previously had a loan with an interest rate that adjusts over time based on market rates, you can refinance to a loan with a fixed rate if rates are lower.

3. You can borrow more money with the equity you have.

• The more you pay off your mortgage, the more equity you have in the property. You can also gain equity if your home appreciates, or increases in value if it is in a prime location, has undergone renovations, etc. Lenders can let you take out up to 80% of your home’s value in equity. Let’s say you have a $200,000 mortgage on a $300,000 property after putting $100,000 down. After 5 years of paying the mortgage, $100,000 is left to pay off still. This means that you have $200,000 in equity in the home— the sum of the money from your down payment and the money you’ve already paid toward the mortgage. The majority of lenders will let you take out a loan worth up to 80% of your home’s value. So, if your home is still worth $300,000, you can take out a $240,000 loan. You still owe $100,000 on your old loan, so after subtracting your older loan balance from your new larger loan, you will receive $140,000 in cash!

4. You can shorten your loan.

• Shortening the length of your loan can save you money toward interest. If you can afford a higher mortgage payment than the one you previously pay, refinancing to a shorter term loan will save you money.

Moody’s, a credit rating and risk analysis company, predicts that home prices will fall in 2023 and 2024 (Weil). This will be an ideal buyer’s market, but will hurt sellers who now must sell their homes at a forced discount.?

Written by:

Matthew Sorace

April 4, 2023

Ohio State University?

Financial Literacy for the Youth

Works Cited:

Barrabi, Thomas. “US Home Prices Sink in West While East Surges: 'Never Seen Anything Quite like This'.” New York Post, New York Post, 27 Mar. 2023, https://nypost.com/2023/03/27/us-home-prices-sink-in-west-while-east-surges/.?

Brooks, Khristopher J. “U.S. Home Prices Are Falling in the West but Rising in the East.” CBS News, CBS Interactive, 29 Mar. 2023, https://www.cbsnews.com/news/home-price-regional-breakdown-mortgage-housing/.

CFI. “Cash-out Refinance.” Corporate Finance Institute, 19 Jan. 2023, https://corporatefinanceinstitute.com/resources/commercial-lending/cash-out-refinance/.

Friedman, Nicole. “A Tale of Two Housing Markets: Prices Fall in the West While the East Booms.” The Wall Street Journal, Dow Jones & Company, 27 Mar. 2023, https://www.wsj.com/articles/home-prices-housing-market-trends-east-west-83c9eb56.

Knight, Black. “Black Knight's February 2023 Mortgage Monitor.” Black Knight, Inc., 31 Mar. 2023, https://www.blackknightinc.com/black-knights-february-2023-mortgage-monitor/?

Team, ATTOM. “Homeownership Slightly More Affordable in U.S.. during First Quarter of 2023 as Housing Market Remains Stalled.” ATTOM, 30 Mar. 2023, https://www.attomdata.com/news/market-trends/home-sales-prices/attom-q1-2023-u-s-home-affordability-report/.

Weil, Dan. US Housing Market in Trouble: Moody's Predicts Home Prices Will Fall in ... https://www.thestreet.com/housing/us-housing-market-in-trouble-moodys-predicts-home-prices-will-fall-in-2023-and-2024.?