For the past several years, home prices have been rising at an incredibly rapid rate. Combined with a persistently tight inventory of homes for sale, this has led to many bidding wars and ultimately many frustrated home buyers. However, the tide is certainly changing now. In its latest report, the National Association of Realtors®(NAR) reported a slight drop in home prices, leading some speculators to wonder if it’s the first volley of major price declines this fall.
The July housing report
According to NAR, existing home prices fell $10,000 month-to-month to $413,800 in July. (This figure does not include new construction homes.) Given the lower number of home buyers in the market and the resulting price reductions on active listings, this figure is certainly not surprising. Although this month-to-month drop in home prices is not entirely unexpected, it does have many wondering what is to come. However, prices were still up 10.8% year over year in July.
It is important to note that home prices typically drop seasonally, with peak prices being seen in June. In typical years, we tend to see smaller homes and more motivated sellers hitting the market in July and beyond. In addition, we also tend to see less buyers in the market because they’re on vacation, getting ready for back to school, or they’ve already found a home or decided to extend their rental.
Good news for some home buyers
With rising mortgage interest rates, we have seen a significant drop in the number of home buyers in the market. In fact, it is estimated that 18 million households have been priced out of the housing market. As of July’s data, existing-home sales dropped 20.2% year over year. As for new home sales, they plummeted even further at nearly 30% compared to the year prior. If you are a buyer in the current market, you can be fairly certain that you will not be contending with the same competition from other home buyers that you would have experienced just 6 to 8 months ago. Of course, you can also expect to pay a higher interest rate for your mortgage, unfortunately.
Summary
In closing, a slight price correction is likely already taking place across most markets throughout the country. As expected, with mortgage interest rates rising rapidly, we see the number of prospective home buyers decrease accordingly. This decreased demand from buyers ultimately results in lower home prices. Of course, it is important to remember that we have some housing markets that experienced up to a 30% price appreciation over the past year alone. Therefore, there is some room for these prices to correct, even if only slightly. The biggest factors that will determine the future of home prices will continue to be mortgage rates, housing inventory, & the length and depth of the current recession. Should the recession worsen, resulting in substantial job losses for Americans, we could certainly see home prices dropping even more. As a home buyer, you can certainly time the market in your favor. For starters, you will want to save as much money as possible to put down on a house. This will help offset the higher mortgage interest rate that you will likely be contending with.
Are you looking to buy or sell in the South Florida market? Let our decades of experience work for you. Contact Natasha at Live South Florida Realty, Inc. Have you not downloaded the free Florida Home Search App yet? Be sure to do so today!
