Annual home prices are still rising — slowly
CoreLogic predicts prices will continue to increase year-over-year, but growth will slow considerably in the coming months.
- While home price appreciation cooled in July and August, prices remained up compared to a year ago.
- Some markets with the strongest growth in 2021 are at the greatest risk of price declines.
So far the slowdown in real estate sales hasn't resulted in year-over-year price declines for most of the country. Experts appear split on whether it will happen in the coming year.
In an October report, CoreLogic found that home prices in August were up 13.5% compared to August 2021, but the rate of growth had slowed for the fourth consecutive month; year-over-year price growth was around 20% back in May.
In its report, CoreLogic predicted that home prices will continue to rise, but at a much lower rate, dropping to around 1% growth in early 2023 before rising again to 3.2% in August 2023.
Several financial firms are forecasting similar numbers for 2023, including Morgan Stanley and Goldman Sachs. Some economists are rethinking their earlier predictions, however. A report released on October 12 by Fannie Mae's Economic and Strategic Research Group tempered its original expectations of modest gains, now predicting a 1.5% decrease in home prices in 2023.
Whatever the future holds, the impact of higher interest rates on demand will play a big role in the rate of home price growth. In a speech on October 6, Christopher Waller, a member of the Federal Reserve Board of Governors, said he expects the steps taken with monetary tightening will provide better balance to the market.
"While this market correction could be fairly mild, I cannot dismiss the possibility of a much larger drop in demand and house prices before the market normalizes," Waller said.
Nationally, home prices may continue to increase slowly, but CoreLogic noted that some previously hot markets are now at a high risk of declines, including Destin, Florida; Bremerton, Washington; Bellingham, Washington; Boise City, Idaho; and Reno, Nevada.
"Housing markets on the West Coast and in the Mountain West, as well as second-home markets, recorded particularly strong price growth in the summer of 2021 but were the first to see month-over-month price declines during the same period this year," said CoreLogic economist Selma Hepp. "While decelerating price growth and price declines benefit younger potential homebuyers, mortgage rates that are approaching 7% may cut many hopefuls out of the picture."
Month-to-month price drops in July and August were the steepest since January 2009, when the country was dealing with the financial crisis, according to a report from Black Knight. The report noted that the areas with the biggest price declines from the peak were San Jose (down 13%), San Francisco (down 10.8%) and Seattle (down 9.9%).
"Right now, prospective sellers are not only coming to grips with falling demand and declining prices due to sharply higher interest rates, but they also have a growing disincentive to give up their own historically low-rate mortgages in this environment," said Black Knight Data & Analytics President Ben Graboske. "Some may be waiting out the market to see if demand — and prices — return in the spring."