Housing Market Update – September 27, 2023

National Home Data

The Case Shiller Home Price Index showed that home prices rose 0.6% in July after increasing by 0.7% in June. Home prices have risen substantially since January. Year-over-year prices are up 1.0% and up 0.6% from the peak last June. The annual number will continue to rise as the price decreases from last summer and fall are replaced, resulting in lower year-over-year comps in future reports. The biggest improvements are coming from a lot of cities hardest hit in 2022, including Seattle and San Diego.

FHFA also released its House Price Index, which measures home appreciation on single-family homes with conforming loan amounts and does not include cash buyers or jumbo loans. The report showed prices higher by 0.8% in July and up 2.9% from a year ago. This is now the sixth month in a row the index has hit record highs and the index is now over 4.0% above last year’s peak.

New home sales, which measures signed contracts on new construction homes, fell 8.7% last month. While the decline is disappointing, it’s clear that a lack of supply and not a lack of demand caused the decline, with only 1.35 months of supply for completed homes currently on the market.

Driving home appreciation is the lack of housing inventory, which hasn’t kept up with demand, and the outlook doesn’t look like things will get better anytime soon. Housing Starts fell by 11% in August, resulting in a 1.283 million-unit annualized rate, a 15% decrease compared to last year. Multi-family homes declined significantly due to high borrowing costs as the Fed pushed higher rates. Single-family starts, a vital aspect of the housing market, fell by 4% last month, falling to a 941,000-unit pace. Single-family residence (SFR) starts are up 2.0% year-over-year, which isn’t close to keeping pace with household formations.

Housing permits, which serve as an indicator of future housing supply, were up 7% in August at a 1.543 million-unit annualized rate, representing a 3% reduction from the previous year. New home completions rose 5% last month, and single-family homes fell 7%. The numbers are startling in future supply, with household formations outpacing new supply by almost 2x.

The National Association of Home Builders (NAHB) announced a 5-point decrease in their Housing Market Index, which measures builder confidence, reaching 45, the first time the index dropped below the key level of 50 since April, and into contraction territory. The decline was due to rising mortgage rates, labor shortages, a lack of buildable lots, and ongoing shortages of distribution transformers needed to connect a home to the grid. The Fed’s push to increase rates in an effort to tamp down demand and decrease home prices has backfired and had the unintended consequence of crushing new and existing home inventory and has done nothing to increase home affordability and stop rising home prices.

The current data does little to assuage concerns about the limited inventory in the housing market. Existing home values are anticipated to appreciate as demand consistently exceeds supply, particularly for entry-level homes. This trend underscores the necessity for a balanced and sustainable approach to address the persistent supply-demand imbalance in the residential real estate market.

Zillow’s August Home Price Index showed that home values rose 0.2% last month and are up 4.5% this year. This is the fourth month in a row reflecting new all-time highs in home values. Zillow’s index is on pace for over a 7% increase for 2023, which aligns with their own forecast.

CoreLogic Home Price Insights report showed prices moving higher by 0.4% in July and are now up 2.5% yearly. CoreLogic forecasts that home prices will increase by 0.4% in August and 3.5% over the next 12 months. Based on the first half of the year, the index is on pace to increase 9% in 2023, which blows away even the most optimistic forecasts before the year started.

Home price appreciation has exceeded even the most optimistic forecasts from earlier this year.

Will price cuts lead to values falling? We often hear from both borrowers and Realtors that they think values are going to start falling because sellers are cutting prices on listings; however, if you look back just because sellers cut prices doesn’t mean home values will fall.

2018 – Home values increased as price reductions rose

2019 – Home values increased as price reductions rose

2020 Home prices rose, while price reductions were steady

2021 Home prices skyrocketed 19% as home price reductions also rose sharply higher

2022: Home prices continued to skyrocket in the first half of the year, followed by the “big housing correction” as prices declined 3% while reductions continued to rise

2023: Home values are again rising as price reductions also rise

Are price cuts from sellers a leading indicator of home prices, or do sellers consistently overvalue their homes and think they can sell for more than their home is worth?

Black Knight’s Home Price Index hit another all-time high after seven consecutive months of growth, increasing 1.5% in July, more than double the 0.7% rise in June. National home equity is now near all-time highs from $231,000 to $249,000. Lack of inventory continues to drive prices higher as 95% of major US markets have a decline in homes for sale. Inventory isn’t expected to improve soon as Black Knight also reported that more than 60% of existing mortgage holders have first mortgages with rates below 4%.

Looking at five of the major home price indexes, we see that the pace of appreciation in 2023 has more than offset the downturn in 2022. If the second half of the year matches what we’ve seen so far, 2023 will have appreciation ranging from 5-10%, depending on which index you look at.

Is This a Hot Housing Market?

Housing Inventory Data from the Federal Reserve (FRED) showed 669k active listings nationwide, down around 80k from last year’s November. As mentioned above, we are far below normal inventory levels seen before the pandemic, down 40% since May of 2019. There are many reasons inventory is so low, including years of housing formations outpacing the building of new homes. Still, a big reason for the recent extreme shortages is homeowners are house-locked due to rates.

According to Black Knight, 65% of all homes with a 1st lien mortgage have a rate under 4%. Until rates drop further, don’t expect a significant increase in inventory. If rates drop significantly, you will likely see an increase in inventory coupled with a surge in demand. Either way, all signs point to increasing home values. Based on current and expected housing data, any talk of a housing bubble is unsupported and not reflected in reality.

Market conditions can certainly change, but it’s likely that we will see appreciation continue in the coming months, even with mortgage rates near 20-year highs.

Local Housing Data

Local housing prices appear to have stabilized and, in some cases, are showing signs of moving higher, albeit at a more moderate pace than we’ve seen over the past several years. Inventory remains tight, and we continue to see more buyers than sellers. Markets and trends can vary depending on where you’re looking, so we provide some key indicators below broken down by county so you can see what your market is currently doing.