Home prices have declined since last summer in most indices, but recent monthly data is far more positive.
A big reason for the decline is higher interest rates driving up mortgage rates and hurting affordability. That’s still true. However, the recent home price decline took place during the slower fall and winter period, so as we enter the spring and summer selling season price trends are improving and some markets on the East Coast remain firmly positive.
Rebounding Prices
Most indices are seeing a recent rebound in home prices. Case-Shiller data has home prices down steadily since last June, but is now seeing a positive move in the most recent reported month of February 2023.
Zillow too, sees home prices down from peak levels, but saw a 1% month-on-month increase in price for April in what Zillow Senior Economist Jeff Tucker wrote in a recent report was a “remarkable turnaround.” Redfin’s data gives a similar picture as prices have moved up in 2023 after declining in the second half of 2022.
East Coast vs. West Coast
There are also clear regional trends in the data. Though home prices for the U.S. in aggregate are now showing signs of life, different regions see different patterns.
Prices in the East Coast, and Midwest generally haven’t seen any dip and home prices remain up year-on-year. However, markets on the West Coast and in Texas are seeing clearly falling prices, with San Francisco and Austin seeing prices down almost 10% in annual terms for April 2023, according to Zillow analysis. The South is more of a mixed bag, prices are up in Birmingham, AL but down in New Orleans.
Affordability Weighs
Despite recent positive trends, affordability is likely to continue to weigh on home prices. The Atlanta Fed’s Affordability Monitor is well into the red as interest rates have caused mortgage costs to spike and incomes have not moved up as fast as prices over recent years. The current level of affordability is at lows not seen since 2007. That may continue to weigh on home prices, despite recent signs of life.
The Fed Next Moves
The decisions the Fed makes for the remainder of 2023 will impact prices through mortgage rates. The Fed currently expects interest rates to be held at high levels for the remainder of the year, but the markets see a good chance the Fed drops rates earlier than planned. If rates do come down that may provide a further boost to the housing market.
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