Home Prices Keep Swooning Amid High Mortgage Rates

The S&P CoreLogic Case-Shiller Home Price Index fell 0.5% in October from September.

Home prices continue to fall as still-elevated prices and mortgage rates push potential buyers away.

The S&P CoreLogic Case-Shiller Home Price Index slid 0.5% in October from September. To be sure, prices remained 9.2% above October 2021.

The October decline jibes with National Association of Realtors data showing that the median existing-home price slid 2.2% to $370,700 in November from October. That was up 3.5% from a year earlier. The price peaked at a record of $413,800 in June.

As for mortgage rates, the 30-year fixed rate averaged 6.27% in the week ended Dec. 22, more than double the 3.02% rate of a year earlier, according to Freddie Mac.

The Federal Reserve has raised interest rates by 4.25 percentage points since March. And Fed officials forecast they’ll go another percentage point next year.

Financing Is a Home-Price Headwind

“As the Federal Reserve continues to move interest rates higher, mortgage financing continues to be a headwind for home prices,” said Craig Lazzara, managing director at S&P DJI.

“Given the continuing prospects for a challenging macroeconomic environment, prices may well continue to weaken.”

A report from Realtor.com sees a difficult 2023 for both home buyers and sellers.

“After being overwhelmed in the housing frenzy of the recent past, homeowners, sellers, buyers, and renters may be underwhelmed in 2023,” Danielle Hale, Realtor.com’s chief economist, wrote in the commentary.

“The slowdown in home-sales transactions that began as mortgage rates surged in 2022 is expected to continue, leading to a moderation in home-price growth and tipping housing-market balance away from sellers.”

No ‘Home-Buyer’s Bonanza’ Just Yet

But “with mortgage rates continuing to climb as the Fed navigates the economy to a softish landing, a moderation in home-price growth will not be enough for the housing market to be a buyer’s bonanza,” Hale said.

To be sure, “home shoppers will enjoy advantages such as a growing number of homes for sale,” Hale said. “But costs will remain high, challenging affordability at a time when overall budgets continue to be squeezed.”

Home inventories totaled 1.14 million units at the end of November, up 2.7% from a year earlier, according to the NAR. Unsold inventory stood at a 3.3-month supply on Nov. 30 at the current sales pace, unchanged from October but up from 2.1 months in November 2021.

Both buyers and sellers are in a bit of a pickle, Hale said.

“If home shoppers and sellers have unrealistic expectations, they could find themselves in a stalemate in the year ahead,” she said.

“The 2023 housing market could become a nobody’s-market, not friendly to buyers or to sellers. Consumers who are ready for the challenge will need up-to-date information on market conditions, creativity and flexibility to adjust, and a healthy dose of patience in order to create success.”

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