U.S. home prices hit yet another record high
Last month, the median home sale price surged 6.2% compared to a year ago— hitting its highest level ever recorded.
In April, the median home in the country sold for $433,558, despite slowing sales that have been stagnating since the pandemic boom.
While listings were up nearly 11% year over year in April, they persist at levels roughly 20% lower than they were leading into the pandemic.
Even this 11% growth is more of a technical "correction." In fact, in April, new property listings dropped to their lowest level ever, excluding the very start of the pandemic.
The base effect of this drop is the main reason behind a relatively large jump in listings over the past year.
Why aren’t listings recovering?
Put simply, owners feel trapped. Many of them secured mortgages with record-low interest rates and now don't want to trade them for much higher rates.
So, instead of listing their home, they’re sitting on their hands and waiting for interest rates to drop.
As reported in creditnews, mortgage rates on 30-year fixed terms remain above 7%. For comparison, rates were below 3% during periods of the pandemic.
Unfortunately for those homeowners, it’s not clear when rates are actually going to come back down.
Financial experts, including influential economist Ed Yardeni, are increasingly saying that a rate cut would not be appropriate, even dangerous, in this economy.
Put another way, all sings points that rates could remain higher for longer.
What does this mean for prospective homebuyers?
While inflation dropped considerably from its peak, at 3.4% in April, it remains far higher than the central bank's 2% target.
This has direct implications for potential homebuyers.
As long as inflation remains above the Fed's target, higher interest rates are likely to stay as a preventive measure to control spending and keep the economy from overheating.
That's because, despite the aggressive jump in interest rates, Americans keep spending and borrowing more than economists and central bankers had expected.
Still, changes may be on the horizon, at least according to Redfin Economics Research Lead Chen Zhao.
Zhao says mortgage rates are already beginning to pull back, albeit slowly, in response to the latest inflation reading.
In April, core CPI rose 0.3% month over month, in line with expectations. April also represented a 0.1 percentage point drop from the 0.4% rise witnessed during the prior three months.
“It’s not all bad news for homebuyers. Mortgage rates are already inching lower in response to this week’s inflation report, which signaled that the Fed may cut interest rates this summer—a possibility that just weeks ago many thought was off the table,” said Zhao.
While home prices hit a record high in April, interestingly, almost one in five (17.6%) listings actually had a price cut. This could indicate a shift in the market, with sellers becoming more willing to negotiate on price.
For comparison, one year ago, only 12.1% of listings dropped their price.
This might also signal an approaching peak, presenting prospective buyers with a favorable opportunity to enter the market or negotiate better deals.
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