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Yesterday Case Shiller revealed a 0.4% growth in home prices in March, following a 0.2% increase in February. With back-to-back reports reflecting home price increases, predictions that home prices have bottomed out appear to be coming to fruition. In addition, Year-over-year, prices rose by 0.6%, a decline from the previous report’s 2.0%, due to higher comparable sales during last spring’s housing market peak.
The FHFA released their House Price Index measuring home price appreciation for single-family homes with conforming loan amounts excluding cash buyer and jumbo loans. The report showed prices increasing by 0.6% in March and showing that prices are now back above their previous peak in June of 2022. In addition, the West Coast, which has been lagging behind the national numbers in appreciation since the market correction started, turned positive in March, showing a 0.6% increase.
These reports reflect what we’ve heard from clients and partners as demand from new homebuyers outpaces new inventory thus far during the spring homebuying season. We expect this trend to continue as we head into summer, especially if rates move lower.
Zillow updated their home price forecasts predicting that values will rise by around 4% in 2023. This aligns with many other forecasts but is significantly better than the narrative the press is pushing. Moderate home appreciation is healthy for the housing market and another sign that we avoided a crash in home prices after multiple years of unsustainable price appreciation.
The National Association of Home Builders (NAHB), which measures builders’ confidence, announced an increase in their Housing Market Index, which rose by five points to reach 50, which is the level right between expansion and contraction. This is the highest reading since July of 2022 due to the current lack of competition from existing homes for sale.
Builder optimism is increasing; however, the production of new homes is drastically lower than household formations. Over the past few years, the housing boom has been in home appreciation, not new home construction. Currently, 1/3 of the housing inventory is new construction, yet the annual rate of homes being built is less than half of the average production since 2000. If you’re wondering why the crash in home prices never materialized as many anticipated, this is a big reason, as there was minimal increased supply when demand dropped.
In April, housing starts increased by 2%, resulting in a 1.4 million unit annualized pace. This figure represents a 22% decrease compared to the same period last year. Single-family starts, which are a crucial component of the housing market, saw a modest increase of 1.6% in April, reaching an 846,000-unit pace. However, single-family residence (SFR) starts are still down by 28% on a year-over-year basis, indicating that the availability of new supply will remain limited. Housing permits, which indicate future housing supply, also experienced a decline in April, falling by almost 1.5% to a 1.416 million unit annualized pace. This is a 21% decrease compared to the previous year. New home completions fell by over 10% in April, and single-family homes were down 6.5%.
The current data does little to alleviate concerns surrounding the limited inventory in the housing market. As demand continues to outpace supply, particularly for entry-level homes, existing home values are expected to appreciate. This trend emphasizes the need for a balanced and sustainable approach to addressing the ongoing supply-demand imbalance in the residential real estate market.
Black Knight reported that home prices rose 0.5% in March after a 0.4% rise in February. CoreLogic’s Home Price Insights rose 1.6% in March and up 3.1% yearly. The 1.6% rise is double the increase of 0.8% we saw in February. CoreLogic updated its forecast, expecting prices to rise by 4.6% over the next year, up almost 1% from last month’s expectations.
The Case Shiller Home Price Index and the FHFA House Price Index. Case Shiller showed that home prices rose 0.2% in February, breaking a seven-month streak of declining home prices. Year over year, prices increased 2%, down from 3.7% from the previous report reflecting higher comparable sales as last spring was the peak of the housing market. All of these reports support the view that housing has turned the corner after a brief correction, and the bottom of the housing market may have already happened. These reports show that some cities that experienced the biggest price drop are also turning positive.
The National Association of Realtors existing home sales report removing new construction showed home sales fell 2.4% in March and are down 22% from last March. The median sales price was down 0.9% from the year prior but up 2.2% compared to last month, which aligns with other reports outlined below, showing home prices appreciating again heading into the spring buying season. Inventory was still well below normal levels at a 2.6-month supply, two months below a “normal market.” Additionally, 40% of the existing inventory is under contract.
On the rental side of the housing market, the Apartment List Rental Report for May showed rents rose 0.9% yearly, lower than the 1.7% increase in last month’s report.
Considering all this information, we believe that inflation will decelerate considerably in the coming months as inflation pressure from shelter costs continue to decline. Since shelter makes up 43.2% of the Core CPI Index, the CPI numbers driving the current inflation data may be misleading. We will see if the next report released on June 13th reflects the decline in rental and housing prices and helps drive inflation lower.
Housing Inventory Data from the Federal Reserve (FRED) showed 564k active listings nationwide, down around 180k from last year’s recent high. We are far below normal inventory levels seen before the pandemic. 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 do 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 there is no indication that home prices will move substantially lower, and it’s more likely that we will see continued increases in appreciation in the coming months.
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.
Whether you’re buying a home or ready to refinance, our professionals can help.
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