As the winter of 2022 came to a close, the rate of monthly declines in home prices had slowed to about 0.1%-0.2%, a significant drop from the appreciable declines seen during the summer and immediately following the surge in mortgage rates. According to CoreLogic’s Home Price Index (HPI) and HPI Forecast, national home prices were down 2.5% from the spring peak, with some markets on the West Coast and in the Mountain West seeing much larger cumulative declines of 8% to 12%.
Selma Hepp, deputy chief economist at CoreLogic, explains that the decrease in home prices reflects weaker housing market demand, primarily caused by higher mortgage rates and a more pessimistic economic outlook in general. During the COVID-19 pandemic, some exurban areas that rose in popularity saw prices skyrocket and affordability decrease. These areas are now undergoing major corrections. Price corrections are expected to continue into spring 2023 and there may be year-over-year declines in the market, however, the recent drop in mortgage rates has caused buyer demand to increase, which could create a more positive homebuying season than was predicted.
The U.S. Federal Reserve's decision to raise the base interest rate has driven mortgage lending costs considerably higher than when they were in the past, resulting in prospective homebuyers not being able to afford mortgages as large as they would have prior to March of 2022. The whole housing market has experienced the repercussions of this, causing a decrease in demand for expensive properties in a lot of areas.
In December 2022, the U.S. home prices were 6.9% higher year over year, according to CoreLogic. Florida had the highest year-over-year increase at 15.3%, followed by Vermont (13.5%) and South Carolina (12.2%). Analyst Ian Shepherdson believes that home prices may fall another 15% in 2023 due to the large disparity between property costs and buyer incomes. However, Goldman Sachs now sees US house prices bottoming out this summer but down around 6% compared to its previous forecast of -10%.
Mortgage rates are beginning to ease as the impacts of inflation start to cool, which was the Federal Reserve's desired effect as they raised the cost of borrowing.
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2. “CoreLogic: Annual Home Price Growth Dropped to 6.9 Percent in December” Mortgageorb, 7 Feb. 2023, https://mortgageorb.com/corelogic-annual-home-price-growth-dropped-to-6-9-percent-in-december
3. “The Winter Housing Market: Predictions for 2023” RealtyBizNews, 8 Feb. 2023, https://realtybiznews.com/the-winter-housing-market-predictions-for-2023/98775746
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6. “Economist who called 2008 housing crash predicts another 15% drop in home prices” Fox Business, 6 Feb. 2023, https://www.foxbusiness.com/economy/economist-who-called-2008-housing-crash-predicts-another-drop-home-prices
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