Housing Prices: Fluctuations, Trends, and Future Outlook
For homeowners, discussions of falling housing prices can evoke concerns, as homes often represent their largest investment. Nationally, housing market activity has seen a slight decline from the peak of 2022’s home prices. Prices experienced a significant drop in the latter half of 2022 but began a steady rebound in March of this year. As of July 2023, the median home price stood at $422,000, down 2% from the peak of $431,000 in May 2022, according to the U.S. New Housing Market Index. Nevertheless, year-over-year data shows a modest 2% increase compared to July 2022’s $413,000.
Despite minor fluctuations from month to month, housing prices are not significantly declining. Lisa Sturtevant, Chief Economist for Bright MLS, affirms, “I do not see home prices falling significantly in most markets across the country. Inventory is still very low, and, despite elevated mortgage rates, demand has been resilient.”
Several factors contribute to these consistently high prices, with a notable emphasis on housing inventory shortages, an influx of first-time homebuyers, and record equity held by repeat buyers. The limited number of homes for sale combined with a substantial pool of prospective buyers prevents significant price drops solely due to competition.
To provide clarity on different price trends, this article dissects various forms of price changes and their implications for current and future home prices. Nationally, home sale prices have experienced a slight year-over-year increase but are stabilizing month-over-month. Redfin data reveals that the sale price for August 2023 was $420,846, marking a 3% year-over-year rise compared to the same period in 2022. However, month-over-month, closed listing prices exhibited only a 0.22% increase.
Despite 18.4% of houses lowering their prices in August 2023, the sale-to-list price remains at 99.9%, unchanged year-over-year, largely due to the ongoing housing inventory shortage. In essence, buyers are meeting sellers’ asking prices, as opposed to proposing significantly lower offers, a common practice in a buyer’s market.
According to Chris Stroud, Co-founder and Chief of Research for HouseCanary, “We’re seeing houses being listed and sold relatively near their listing price. Cuts are coming down significantly, as sellers are reluctant to abandon low rates while also selling their home at a discount.”
The median days on the market in August 2023 increased by just 4 days year-over-year to 30 days, according to Redfin. This is a notable increase from the low of 15 days in July 2021. However, the median days on the market still remain lower than any point between August 2018 and August 2020, primarily due to the ongoing supply constraints. In August 2018, there were 2,361,948 homes listed in the United States. This number has been steadily declining and reached just 1,514,235 in August 2023, marking a 35% decrease over five years and an 18.6% decline year-over-year.
Over a five-year span, housing prices have surged, with the median sales price climbing from $285,252 in August 2018 to $420,846, representing a 47.5% increase. However, experts caution that such growth rates cannot be sustained. According to Stroud, “Prices remain near all-time highs, and mortgage rates are at multidecade highs. Given both of these factors, there is little room for home prices to increase for the foreseeable future. There is, however, a future risk that prices could come down if the market were to be flooded with inventory.”
While it appeared earlier this year that housing prices were on the verge of falling, by August 2023, the most recent sales data indicated a significant turnaround. Prices not only stabilized but started to rise again in many cases.
Even cities experiencing high outbound migration, such as San Francisco, New York City, Los Angeles, Washington, D.C., and Louisville, Kentucky, did not witness consistent price drops, according to Redfin.
In San Francisco, despite a 26.3% year-over-year decrease in the number of homes sold, prices increased by 6% during the same period. New York City experienced a minimal sales price decrease of just 0.61%, despite an 18.2% drop in the number of homes sold. Los Angeles saw a marginal 0.4% gain in prices despite a 4.5% decrease in home sales. Washington, D.C., was the only market among the top five for outbound migration that experienced an actual decline in housing prices, with a 3.5% year-over-year drop in August 2023, coupled with an 8.3% year-over-year decrease in sales. Louisville, Kentucky, saw a 4.2% increase in median sales price, alongside a 14.2% decrease in home sales.
RE/MAX data also supported these findings, revealing minimal changes in the most declining markets, according to Nick Bailey, President and CEO of RE/MAX.
The real estate market’s future is challenging to predict due to numerous contributing factors that have created an unparalleled market. Bailey highlights factors such as demand, higher interest rates, and the limited inventory as primary drivers of high real estate prices. The estimated 90% of individuals with interest rates below 5%, with half of them below 3.5%, are disincentivized to sell.