The median sales price for existing homes has slid 9% from a record high of $413,800 last June to $375,700 in March.
Home prices have been in a slump for the last nine months.
The median sales price for existing homes has slid 9% from a record high of $413,800 last June to $375,700 in March, according to the National Association of Realtors.
DON’T MISS: These Are the Housing Markets That Are Growing the Fastest
Soaring mortgage rates were largely responsible, with the 30-year fixed mortgage rate averaging 6.39% in the week through April 20, up from 5.11% a year ago, according to Freddie Mac. That rate increase, of course, stems from the Federal Reserve’s own interest-rate hikes.
The home-price drop will continue through year-end, Vanguard predicts.
“U.S. home prices likely will decline 5% on a year-over-year average basis in the second half of 2023,” it said in a report. That’s an “early sign of the lagged economic effects of changing monetary policy,”
This doesn’t bode well for the economy, Vanguard notes.
“Since World War II, declines of greater than 10% in the annualized rate of investment in housing construction and improvements have coincided with recession on all but two occasions,” the report said.
Those two exceptions were wartime periods, when defense spending propped up the economy,” the report explained.
Weak Housing Investment Prevails
“In the last three quarters of 2022, declines in [housing] investment hovered around negative 20%. The housing downturn is part of the reason why we view a mild U.S. recession in 2023 as most likely.”
But Vanguard sees a rebound for home prices in 2024-25. Lower home prices themselves will provide support by making homes more affordable.
“As affordability normalizes, housing should act as an economic stabilizer,” the report said.
“Our researchers believe U.S. housing activity will be driven in the next couple years by:
“The structural undersupply of homes that has prevailed since the 2008 global financial crisis;
“Robust demographic trends and favorable sentiment toward homeownership;
“Strong borrower fundamentals and high equity cushions.”
Housing Market’s Difficulties
Freddie Mac’s Chief Economist Sam Khater shares some of Vanguard’s pessimism.
“Home prices have stabilized somewhat. But with supply tight and mortgage rates stuck above 6%, affordable housing continues to be a serious issue for many potential homebuyers,” he said. “Unless rates drop into the mid-5% range, demand will only recover modestly.”
Existing home sales have slipped for 13 of the last 14 months, falling 2.4% in March from February, according to NAR.
“Home sales are trying to recover and are highly sensitive to changes in mortgage rates,” said NAR Chief Economist Lawrence Yun. “Yet, at the same time, multiple offers on starter homes are quite common, implying more supply is needed to fully satisfy demand. It’s a unique housing market.”
He noted that price patterns vary around the country. “Home prices continue to rise in regions where jobs are being added and housing is relatively affordable,” he said. “However, the more expensive areas of the country are adjusting to lower prices.”