Buyers are flocking back into the housing market as prices fall for the first time since 2012
Home prices, meanwhile, posted their first year-over-year decline since 2012, with the median price of U.S. homes falling 0.2 percent to $363,000.
The jump in sales activity confirmed some economists’ claims that the US housing market had already bottomed out in its years-long slump.
“The housing recession is over when spring comes early this year and has real estate agents shouting hallelujah,” said Chris Rupkey, chief economist at FWD Bonds, a New York-based market research firm.
The housing downturn occurred as skyrocketing prices in 2020 and 2021 collided with rising interest rates, making the home buying process less affordable across the board. Home buying activity slowed significantly through 2022 as the Federal Reserve put the brakes on the economy and the typical mortgage interest rate more than doubled, climbing as high as 7.08 percent.
The housing market is particularly sensitive to interest rate fluctuations because most people acquire new homes with the help of a mortgage, which can involve tens or hundreds of thousands of dollars in interest on top of the home price. It means Fed interest rate hikes added hundreds of dollars each month to the cost of a new mortgage, convincing many would-be homeowners to stay away the market. But the average mortgage rate had fallen back to 6.09 percent by early February, enticing some to resume their home search.
“Aware of changing mortgage rates, homebuyers take advantage of any drop in interest rates,” NAR Chief Economist Lawrence Yun said in a news release. “We also see stronger sales gains in areas where house prices are falling and the local economies are adding jobs.”
Prices varied considerably from region to region. In the South and Midwest, house prices increased by 2.7 per cent and 5 per cent respectively in the past year, according to NAR.
Prices fell in the northeast, where the median house price fell 4.5 percent from the previous year to $366,100, and in the west, where the median house price fell 5.6 percent to $541,100.
The increase in sales activity was driven by Vesten, which saw house sales increase by 19.4 per cent.
The trajectory of prices going forward may depend heavily on what happens to interest rates, say analysts. Interest rates fell again in the past week as bank failures seeped into the financial system.
The Federal Reserve meets on Tuesday and Wednesday to assess whether more rate hikes are needed to curb inflation. A decision on how much interest rates will change is expected on Wednesday.
Federal Reserve Chairman Jerome H. Powell indicated in comments to Congress that more aggressive rate hikes may be necessary, but the failure of two technology-focused banks has fueled speculation that the Fed may take a more cautious approach.
Ali Wolf, chief economist at Zonda, wrote in a Tuesday blog post that spring’s strong sales season shows how demand for homes can be sensitive to real-time interest rates, as buyers wait for the perfect moment to pull the trigger for a long time. held purchasing plans.
“The new question is – will consumers continue to celebrate the decline in mortgage rates, or will broader economic concerns push them back to the sidelines?” asked wolf.
Zillow Group senior economist Orphe Divounguy said the Fed is trying to “engineer a healing of the economy,” but it needs more homes to be available for sale for that healing process to succeed. Meanwhile, lower prices and lower prices could stimulate further buying activity, he said.
“If you get a combination of prices falling and a big drop in mortgage rates, you could see a lot of activity,” Divounguy said in a recent interview.
