Why Home Prices are Going Up

If you’re putting off moving because you’re worried home prices might drop, make no mistake – they’re not going down. In fact, it’s just the opposite. National data from several sources^[1][2] say home prices have been going up consistently this year.^[3]

The Data from 2022 and 2023

Check out this graph, titled Percent Change in Home Values with month-over-month price comparison data from Zillow, Black Knight, and Freddie Mac:

Here’s what this graph shows. In the first half of 2022, home prices rose significantly (the green bars on the left side of the graph). Those increases were dramatic and unsustainable.

In the second half of 2022, prices went through a correction and started dipping a bit (shown in red). But those slight declines were shallow and short-lived. Still, the national media really focused on those drops in their headlines – and that created a lot of fear and uncertainty among consumers who were considering selling their homes.

Here’s what hasn’t been covered fully:

So far in 2023, prices are once more going up, but this time at a much more normal pace (the green bars on the right side of the graph above). After price gains that were too high and then the corrections that followed in 2022, the fact that all three reports show more normal or typical price appreciation this year is good news for the housing market at large.

Orphe Diyounguy, Senior Economist at Zillow, explains changing home prices over the past 12 months:

“The U.S. housing market has surged over the past year after a temporary hiccup from July 2022 – January 2023 … That downturn has proven to be short lived as housing has rebounded impressively so far in 2023.”^[4]

Looking ahead, home price appreciation typically starts to ease up in the fall/winter. As that happens, there’s some risk that the national media will confuse slowing price growth (or deceleration of appreciation) with falling home prices (depreciation). Don’t be fooled by this.

Slower price growth is still price growth.

Why are Home Prices increasing now?

One reason that home prices are going up is that there still aren’t enough homes for sale for the number of buyers who want to buy them.

Even though higher mortgage rates cause buyer demand to moderate, they also cause the supply of available homes to go down. That’s because of the mortgage rate lock-in effect. When rates rise, some homeowners are reluctant to sell and lose their current low mortgage rate just to take on a higher one for their next home.

With higher mortgage rates impacting both buyers and sellers, the supply and demand equation of the housing market has been affected. Since there are still more people who want to purchase homes than there are homes available to buy, prices continue to rise, As Freddie Mac states:

“While rising interest rates have reduced affordability – and therefore demand – they have also reduced supply through the mortgage rate lock-in effect. Overall, it appears the reduction in supply has outweighed the decrease in demand, thus house prices have started to increase.”^[4]

How are you impacted?

Buyers, if you’ve been waiting to buy a home because you were afraid the value might drop, knowing that home prices have gone back up should make you feel better. Buying a home gives you a chance to own something that usually becomes more valuable over time.

Sellers, if you’ve been holding off on selling your house because you were worried about how changing home prices would impact its value, it would be smart to start working with a real estate agent and put your house on the market. You don’t have to wait any longer because the most recent data indicates that home prices have turned in your favor.

Final Thought

If you’ve put off moving because you were worried that home prices might go down, data shows they’re increasing across the country. As for your local and regional market, it’s wise to connect with a real estate expert in your area who can look at all the factors and advise you in the best possible course of action to achieve your ultimate goal.

^[1] BlackKnight

^[2] Zillow

^[3] Freddie Mac

^[4] Zillow

^[5] Freddie Mac

Related Post: Smaller, More Affordable Homes are Coming to Market

Adapted from KCM.