Home prices rose more than 40% in about two years during the pandemic housing boom. Since then, home prices have continued to rise. Capital Economics, for its part, recently said that the national average home price has risen nearly 50% since the start of the pandemic. First American, yesterday, released The House Price Index report states that “home prices nationally are now 52% higher than pre-pandemic levels,” having increased by more than 6% over the past year.
But maybe something will change. Zillow recently revised the forecast for house prices will rise, but this year the cost of houses will rise only by 1.9%; Previously, the company expected home prices to rise by 0.9%. In a report released earlier this week, Zillow called it “slower than long-term norms, but a welcome slowdown for first-time buyers compared to the rapid growth seen during the pandemic.” Still, before the pandemic, it was normal for home prices to rise by about 5% to 6% each year, said Redfin chief economist Daryl Fairweather. recently said.
This isn’t the first time Zillow has changed its home price forecast for this year, and it likely won’t be the last. But his reasoning revolves around new listings and mortgage rates.
“With interest rates still elevated, the modest upward revision is largely the result of slowing growth in new for-sale listings,” Zillow said. “After rising 21% annually in February, annual growth in new listings slowed to just 4% in March, indicating the market remains fairly tight for potential home buyers.”
Yesterday afternoon, Federal Reserve Chairman Jerome Powell said interest rate cuts may not happen this year. “Right now, given the strength of the labor market and progress in inflation, it is appropriate to give contractionary policies additional time to work,” he said, later adding that depending on inflation, the Fed would maintain current interest rate levels for a long time. as much time as necessary.
This is bad news for mortgage rates and for anyone looking to buy a home. Last October, mortgage rates reached a more than two-decade high of 8.03%. They fell for a while, at one point dropping to 6.61%. But over the past week or so, mortgage rates have risen; The latest data showed the average 30-year fixed mortgage rate at 7.50%, the highest all year.
“Persistent inflation has dampened any optimism that the Federal Reserve might start cutting rates in June, meaning mortgage rates look increasingly likely to stay ‘high and longer’ this year,” First American chief economist Mark Fleming said in his analysis. accompanying its house price index.
Nobody knows what will happen to mortgage rates or new properties, but we do know that the lock-in effect is real – so as long as mortgage rates are higher than what people are used to, homeowners will choose not to sell. “Many retailers will continue to strike, holding back supplies,” Fleming said.
For its part, Zillow said, “it remains to be seen what new listings will look like in April—the Easter holiday falling in March and the fact that February was a leap year are likely clouding the broader picture.” However, last year existing home sales fell to their lowest level in nearly 30 years; and Zillow appears to be expecting further declines this year.
“Zillow’s forecast now calls for 4.06 million existing home sales in 2024, down slightly from the 2023 level of 4.09 million and the previous forecast of 4.1 million existing home sales this year,” it said, despite February “sales are better than expected.”