Home prices have increased nationwide in February after falling for seven consecutive months. New data from Case-Shiller U.S. National Home Price S&P Core Logic showed that prices rose from the previous month by 0.2% after seasonal adjustments. Prices were up by 2% year-over-year. The bump in home prices reflects a return to normal for the spring buying season, according to Zillow senior economist, Nicole Bachaud said in a statement. She said:
“Inventory has remained low as sellers are locked into their mortgage rates, even as many home buyers are turned away from this market due to affordability constraints amid volatile mortgage rates.[…] Regardless of slower than usual demand, the low inventory environment is creating more competition on fewer homes, leading to prices reversing their descent from last year’s peak, which will likely continue in the coming months.”
Home Price Index
Source: Case-Shiller Home Price Index
Data released by the Department of Commerce last week showed an 0.8% decrease in housing starts in March, led by a decline in construction of new multi-family units, which fell by 6.7%. Home prices declined significantly between June 2022 and January 2023. In June 2022, the home price index was estimated at 318.59. In January 2023, this index declined to 296.96. The increase that recently occurred in the home price index was very mild yet promising. This shows once again that despite high-interest rates, home prices rise because of the season. During the spring season, home price increases because demand for housing increases. The springtime and even summertime is when most of the domestic migration happens. As people move to new locations and new geographical areas, the first thing they look for is housing whether for renting or even owning. People primarily relocate for economic opportunities. Most people change jobs and this job change requires workers to change their location. As a result, demand for housing rises, hence the price increases.
Beyond domestic migration as a driving factor affecting home prices, mortgage rates themselves continue to determine whether a prospective homebuyer would buy a home or not. Home prices have been declining for nearly a year. This decline presented an opportunity to prospects who have enough money to meet the requirements to become homeowners (down payments, HOA fee…etc.). They can buy houses at affordable prices and negotiate interest rates.
It is important to keep in mind, however, that when an index like Case-Schiller says, “U.S. home prices,” it’s referring to the national aggregate. On a regional and even local level, home prices continue to vary considerably. It is, therefore, important to observe this rise in home prices with a grain of salt rather than taking it at face value.