New homes across the United States are now experiencing a surge in prices, specifically due to supply constraints and high rates.
The Black Knight Home Price Index has recently revealed that in May 2023, home prices reached a record high, rising 0.7% compared to the previous month on a seasonally adjusted basis.
This upward trend in prices has been evident since January, with May figures showing a 0.1% increase compared to the same period the previous year. Despite mortgage interest rates remaining high, the housing market is once again gaining momentum, and the rate of increase is accelerating each month.
Andy Walden, the Vice President of Enterprise Research at Black Knight, expressed his confidence in the resurgence of the housing market. “There is no doubt that the housing market has reignited from a home price perspective,” said Walden.
Although the annual growth rate dropped to 0.1%, May’s remarkable 0.7% month-over-month gain indicates an annualized growth rate of 8.9%, according to Walden.
This suggests that the annual home price growth rate will remain near 0% for a brief period before sharply trending higher in the coming months.
The surge in home prices can be traced back to last year when a significant increase in mortgage interest rates temporarily cooled down the overheated housing market. However, this downturn was short-lived. Despite persistently high rates, home prices are now rebounding, with more substantial gains observed each passing month.
CNBC quoted Robert Reffkin, CEO of Compass Real Estate, as stating that the housing data reveals a shift in what is considered the “new normal” for mortgage rates.
According to him, 6% mortgage rates were accepted as the new normal earlier this year. Now, it seems that 7% mortgage rates have become the new accepted norm, with people adjusting their expectations accordingly.
By May, over half of the largest housing markets in the country, primarily in the Midwest and Northeast, had either returned to their previous price peaks or achieved new highs. However, the West and several pandemic “boom towns” are still experiencing weaker home prices. These cities, which saw an influx of remote workers during the early days of Covid-19, are beginning to see signs of stabilization.
The only exception to this trend is Austin, Texas, one of the prominent pandemic boom towns. Austin continues to have an abundance of inventory, surpassing pre-pandemic levels. Consequently, this surplus has placed downward pressure on prices, resulting in a significant gap of -13.8% below peak, the largest among all markets.
Only eight of the top 50 markets currently have prices more than 5% below their 2022 peaks, as pointed out by Walden.
In overall, supply of homes is once again declining. New listings have decreased by approximately 25% compared to the previous year, as homeowners with sub-4% mortgage rates hesitate to sell their properties and potentially face much higher interest rates on a new home. Total inventory is now only half of what it was before the pandemic, which triggered the massive housing boom.
Although sales of pre-owned homes remain weaker than they were a year ago, this decline is primarily due to a decrease in supply rather than higher costs. The National Association of Realtors reported that the median price of a pre-owned home in May was $396,100. Additionally, Redfin, a real estate brokerage, revealed that, for the first time in nearly a year, the average home is selling slightly above its list price.
Meanwhile, competitive bidding wars are making a comeback in the housing market, even if it means sacrificing affordability.
As of June 22, with 30-year mortgage rates at 6.67%, a median-priced home with a 30-year mortgage and a 20% down payment required a monthly payment of $2,258 in principal and interest. This payment stands as the highest recorded, slightly surpassing the previous high of $2,234 in October.
