Once Again, US Home Prices Increase as Limited Inventory and Mortgage Rates Reduce Affordability

U.S. Housing Market Sees Increase in Home Prices Despite Higher Mortgage Rates

The U.S. real estate market has continued to show strength in October, with home prices experiencing a rise despite higher mortgage rates and lackluster housing supply, based on data from the Federal Housing Finance Agency (FHFA). The average prices of single-family homes with mortgages guaranteed by Fannie Mae and Freddie Mac increased by 0.3 percent, which was a decline from the 0.7 percent rise observed in September. Compared to the previous year, house prices saw a 6.3 percent increase.

Seasonally adjusted monthly price changes across different regions ranged from a decrease of 0.3 percent to an increase of 1.1 percent. Nataliya Polkovnichenko, the Supervisory Economist at FHFA’s Division of Research and Statistics, noted that while U.S. house price gains remained robust over the past 12 months, price appreciation moderated in October, with slowdowns observed in four divisions compared to the previous month.

The real estate market witnessed a boost despite the sharp rise in mortgage rates. As mortgage rates have started to ease and with the Federal Reserve indicating a monetary easing in 2024, homeowners may anticipate more appreciation in their property values. Brian Luke, head of commodities, real & digital assets at S&P Dow Jones Indices, highlighted that there has been a broad-based home price appreciation across the country, with steady gains observed in nineteen of twenty cities, reflecting trendline growth compared to historical returns and minimal disparity among cities and regions.

The Department of Housing and Urban Development (HUD) statistics showed that the median sales price of homes sold in the third quarter was $431,000, marking a 35 percent increase from the third quarter of 2019. Despite the boost in home prices, housing affordability remains a significant concern, as only 15.5 percent of homes for sale were identified as affordable for the average U.S. household, according to an analysis from real estate group Redfin. This was the lowest percentage since the organization began tracking data about a decade ago.

An additional impediment to housing affordability has been the lack of inventory, with residential listings down 38 percent below the typical levels seen between 2017 and 2019. Despite these challenges, there is some positive news for prospective homebuyers, as mortgage rates are showing signs of easing and home price growth is slowing. According to Redfin Senior Economist Elijah de la Campa, the factors that contributed to 2023 being the least affordable year for homebuying are starting to ease, and it is likely that there will be an increase in home purchases in the new year as buyers take advantage of lower mortgage rates and more listings after the holidays.

While there is some relief in sight for prospective homebuyers, Fitch Ratings has raised concerns that home prices could regain momentum if the Federal Reserve follows through on its anticipated rate cuts in 2024. The ratings agency is forecasting a potential surge in residential property valuations in the coming years, creating further challenges in housing affordability, especially for entry-level and first-time homebuyers.

In addition, the lack of supply has been identified as a substantial contributor to the higher prices in the housing market. Despite a slight year-over-year increase in the number of active residential listings in November, inventory levels remain well below those observed before the pandemic. With many current homeowners having acquired their properties at lower prices and interest rates during the pandemic, there has been a reluctance among them to put their homes on the market for sale. As a result, existing home sales have seen declines this year, while new home sales, although generally healthy in 2023, also experienced a significant drop last month. Overall, the U.S. housing market reflects a combination of challenges and opportunities that will continue to shape the landscape for homebuyers and sellers in the near future.

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