Home prices continue to defy gravity, new data shows
What goes up must come down… Not when it comes to home prices lately.
According to the most recent release of Redfin's Home Price Index (RHPI), home prices increased by 0.5% in April. Despite the sales slowdown, prices have surged by 7.3% compared to a year ago.
With prices still on the rise, many would-be buyers are putting all options on the table.
"Some of my younger buyers are considering buying a multifamily home and renting half of it out in order to make their monthly payments pencil out," said Bonnie Phillips, a Redfin Premier real estate agent in Cleveland.
Home prices have now risen by half a percentage point for six consecutive months, indicating price growth has seemingly stabilized from the pandemic rollercoasters.
Still, considering that home sales are at rock-bottom lows, it's a remarkable growth—underscoring housing's Achilles' heel.
Supply problems continue to drag on
Experts say that a significant shortage in housing supply is preventing prices from falling more substantially.
Supply has been an issue for a while now. According to the National Association of Realtors (NAR), existing home sales in 2023 fell by 19% to 4.09 million—the lowest level since 1995.
Although new property listings increased by 1.7% in April, the home supply is still about 20% lower than before the pandemic, thanks to a lightning-fast jump in mortgage rates.
Many homeowners are reluctant to sell because they feel tied down by the low mortgage rates they received during the pandemic.
This phenomenon is often referred to as "golden handcuffs," which is one of the key reasons behind the supply shortage in existing homes, accounting for over 85% of sales.
Who can even afford a home anymore?
Last week, homebuyers breathed a small sigh of relief as mortgage rates dropped below 7% for the first time in five weeks, following April's record high.
However, people are starting to question whether low interest rates and affordable home prices will become remnants of a bygone era.
According to a new study from Creditnews Research, in 2024, middle-class households could afford to buy an average home in just 52 of the country’s 100 largest metros.
Just five years earlier, they could afford a home in 91 of the top 100 metros.
According to Redfin’s April home price data, San Francisco, CA, stands out with the highest month-over-month increase of 3.77%, followed by San Diego, CA, with a 2.07% rise, and Nassau County, NY, with a 1.94% increase.
This upward pressure on prices, despite reduced demand, shows that the housing market is likely going to be a tough nut to crack.