After declining for several consecutive months, home prices are once again on the rise as surprisingly low inventory is sparking buyer demand this spring.
Inventory dropped significantly in March — there were 30% fewer listings on the market this year compared to the same time of year pre-pandemic. As a result, home prices spiked by 0.45% month-over-month as competition among buyers remains fierce. Not only are home prices increasing, but buyers are once again contending with the pandemic-era pains of bidding wars and quick sale times. According to Redfin, around 50% of homes are selling within two weeks.
This unexpected trend is a result of sellers becoming increasingly reluctant to list their homes amid the high-interest rate environment. Finding a new home in this market is no easy task, and the perception that interest rates are also weighing on buyer affordability is also keeping many sellers out of the market. Macroeconomic factors as well as a lack of infrastructure in Sunbelt markets also continue to inhibit new development. This combination of factors has resulted in far fewer listings this spring than anticipated.
According to a mortgage market trends report from Black Knight, 47 of the 50 largest housing markets saw prices increase between February and March. While home prices are up nationally, not all markets are benefiting from these latest trends. Many areas throughout the West Coast and Northeast, which were among the most expensive in 2021 and 2022, are still experiencing declining home prices. Washington experienced the steepest decline at -7.4%, while Idaho, Nevada, Utah, and California all dropped by more than 3%. Some hot pockets of Texas, such as Austin and San Antonio, also experienced a decline.
Another report by CoreLogic also supported the idea that home prices are rising. According to the report, home prices were not only up month over month, they were up 3% compared to last March, but much of this increase is driven by higher home prices in the Sunbelt. For example, home prices in Miami were up nearly 15% from a year ago.
The report suggests the geographical imbalance in market activity is largely driven by remote working conditions. States like Florida, Texas, Arizona, and The Carolinas, are continuing to see an influx of people moving away from California, Washington, and New York as flexible work arrangements continue to allow for greater mobility.
“The monthly rebound in home prices underscores the lack of inventory in this housing cycle,” Selma Hepp, Chief Economist of Core Logic said in a statement within the report. “In addition, while the lack of affordability generally weighs on home price growth, mobility resulting from remote working conditions appears to be a current driver of home prices in some areas of the country.”
What’s most surprising about this modest uptick in home prices is it’s coming at a point when interest rates aren’t too far off their peak. Average interest rates on a 30-year fixed mortgage are still hovering between 6% and 7%. While an extended high-rate environment typically leads to declining home values, it can eventually restrict seller activity as well, which can result in lower inventory and higher competition.
While it’s unclear if this price increase is temporary, seller inventory should pick up if rates begin to fall later in the year. Many expect rates will drop below 6% by the end of the year and will continue to drop in 2024. However, these rates will continue to weigh on buyer demand for some time. But for the time being, sellers who do decide to list can benefit from this unexpected shift in the market.