Home price growth in the USA has been slowing. In February, US home prices rose by 0.6%, matching the average monthly increase seen over the eight years before COVID-19. Redfin recently conducted this analysis, which showcases the declining home price growth in the USA.
Home Price Growth in the USA
According to Daryl Fairweather, the chief economist at Redfin, the prices increased around 0.5% each month before the pandemic started. This resulted in an annual increase of around 5% to 6%. She added that despite high mortgage rates, the US economy is witnessing a return to that pattern.
Matthew Walsh, Assistant Director and Economist at Moody’s Analytics, said that even the Moody’s Analytics House Price Index has seen a similar pattern. He said that home price growth has been taking place at the same rate as before COVID-19.
However, experts say the market right now is different from that of 2 to 8 years ago. Even though the inventory has increased comparatively, the average home is still unaffordable for most potential buyers and is falling short of meeting demand.
Fairweather added that their agents have said that the sellers and the buyers are not happy with the current market. He said that the sellers are unhappy with the offers they are receiving. Buyers are still frustrated by increasing prices and mortgage rates.
Home price growth has been steady, but one major difference from the pre-pandemic era is the low number of transactions. This is largely due to the high mortgage rates. According to Freddie Mac data, mortgage rates increased to almost 8% last year and are currently above 6%.
Walsh added that despite a small increase in the February data, the transaction levels are very low. He said that another factor contributing to low home sales is the limited supply of homes available in the market right now.
New listings have increased by 5% in the last four weeks, the largest year-over-year rise since May 2023. However, this report by Redfin shows a small recovery from rock bottom.
The supply growth is mostly attributed to the seasonal trend, according to economists. Walsh said most homeowners often list their properties for sale in February as they prefer to move during spring and summer. Fairweather added that sometimes people need to move for a new job, marriage, or other significant life events.
The mortgage rate lock-in effect or the golden handcuff effect has also caused homeowners with low mortgage rates to resell their homes last year as they did not want to finance a new home at a much higher interest rate.
It has been seen that this golden handcuff effect has started loosening its hold, resulting in a possible increase in the market’s house supply.
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