BackIn a surprising turn of events, a robust beginning to the year in home sales counteracted a steep, multi-month drop in US home prices, with mortgage rates playing a key role in the shift.
According to proptech firm Black Knight, national home prices experienced a 0.16% increase in February after seasonal adjustments, marking the most substantial one-month gain since May of the previous year. Home prices now stand 2.6% lower than their peak in June.
In February, 39 of the 50 largest US markets witnessed rising home prices, a stark contrast to November when prices dropped in 48 out of 50 markets.Mortgage rate fluctuations contributed to the swift change. Starting 2022, the average rate on a 30-year fixed mortgage began rising from a record low, going from around 4% to just above 6% by June. As sales slowed, prices followed suit. By fall, the rate exceeded 7%, and home prices cooled off more rapidly.
However, mortgage rates decreased in December and January, prompting homebuyers to act quickly. Closed sales of existing homes in February, representing contracts signed in December and January, jumped an impressive 14.5%, according to the National Association of Realtors.
NAR's chief economist, Lawrence Yun, said in the February sales release that homebuyers are aware of fluctuating mortgage rates and seize any opportunity when rates decline.
The real estate price dynamics vary by location. Miami and more affordable Midwest markets, like Cincinnati, Columbus (Ohio), and Cleveland, continue to see the largest price increases, Black Knight reports. Conversely, in areas that experienced significant price inflation in recent years, such as Austin (Texas), Las Vegas, Salt Lake City, Seattle, and San Francisco, prices are still dropping.
While mortgage rates have been the primary driver of the national price reversal, limited supply adds further upward pressure, especially amid the new spring demand from buyers.
Black Knight's Vice President of Enterprise Research Strategy, Andy Walden, commented on the ongoing scarcity of inventory that continues to create market congestion in the release.
The number of homes for sale in February decreased for the fifth consecutive month, reaching the lowest level since May of the previous year, as reported by Black Knight. New listings were 27% lower compared to pre-pandemic levels.
Walden added that although some price increases—particularly in Miami—can be attributed to people relocating to the area, more significant price gains are generally observed in regions with better affordability and larger inventory shortages.
Mortgage rates began to rise again in February, followed by a slight drop in March due to market concerns about the US banking system amid several bank failures. However, the crisis seems not to have deterred demand for homes, with real estate agents still reporting busy open houses anecdotally. Black Knight predicts that prices will continue to decrease throughout the year, but if supply keeps dwindling and competition remains fierce, prices might not have much further to fall.
