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Slowing Growth in Home Prices Indicates Market Stabilization

Slowing Growth in Home Prices Indicates Market Stabilization

In February, U.S. home prices rose by 0.6%, aligning with the pre-pandemic average monthly increase, according to a recent Redfin analysis. This return to pre-pandemic growth rates suggests stabilization in the housing market, even amidst higher mortgage rates.

Daryl Fairweather, Redfin’s chief economist, noted that while prices are rising, the market differs significantly from previous years. Affordability remains a challenge for many buyers, and inventory, while slightly improved, is still insufficient to meet demand, leading to dissatisfaction among both buyers and sellers.

Despite the return to pre-pandemic price trends, the housing market faces challenges such as high mortgage rates and limited inventory. Transactions are at “recessionary lows,” largely due to these factors, according to experts. While new listings have seen a slight increase, supply growth remains constrained, contributing to the ongoing housing supply shortage.

The mortgage rate lock-in effect, which previously deterred homeowners from selling their homes, is gradually easing, allowing for a slight increase in available supply. This effect is expected to diminish further over time, particularly as the Federal Reserve considers cutting rates later this year.

Although new-home sales are showing improvement, with sales averaging about 600,000 per month, this alone is insufficient to address the housing supply gap. Homebuilders are benefiting from frustrated buyers turning to new homes, as builders can offer incentives that existing homeowners might not. However, it will take time to significantly impact the housing supply shortage across the country.

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