Median Home Prices Fall for First Time in a Decade, But What Does It Mean?

Please consider Redfin’s housing market update: Home Prices Fall Annually For First Time In A Decade As Mortgage Rates Pass 7%

Key Points

• The median home sale price was $350,246, down 0.6% from a year earlier, the first decline on record. Redfin’s monthly dataset, which goes back through 2012, shows that the last time home prices declined annually was February 2012, when they dropped 1.5%.
• Median sale prices fell in roughly half (24) of the 50 most populous U.S. metros, with the biggest drops in pandemic homebuying hotspots and northern California. Austin (-11% YoY) saw the biggest dip, followed by San Jose, CA (-10.9%), Oakland, CA (-10.4%), Sacramento (-7.7%) and Phoenix (-7.3%). That’s the biggest sale-price drop on record for each of those metros except San Jose.
• Sale prices increased most in West Palm Beach (+15% YoY), Milwaukee (13.2%), Columbus, OH (9.5%), Miami (9.1%) and Fort Lauderdale, FL (7.8%).
• The median asking price of newly listed homes was $382,225, up 0.6% year over year, the smallest increase since April 2020.
• The monthly mortgage payment on the median-asking-price home was $2,520 at a 6.65% mortgage rate, the current weekly average. That’s an all-time high. Monthly mortgage payments are up 28% ($556) from a year ago.
• Pending home sales were down 15% year over year, the smallest decline since July.
• Pending home sales fell in all 50 of the most populous U.S. metros. They fell most in Las Vegas (-55.2% YoY), Austin (-49.5%), Portland, OR (-46.9%), Riverside, CA (-45.4%) and Nashville (-45.3%).
• New listings of homes for sale fell 20.3% year over year. New listings declined in all 50 of the most populous U.S. metros, with the biggest declines in Oakland, CA (-45.1% YoY), Sacramento (-42.6%), Seattle (-42%), San Jose, CA (-41.6%) and Portland, OR (-41.6%).

Is Median Home Price a Good Metric?

Median price is a timely metric. Timeliness is good. 

But when transaction volumes are falling off a cliff (see last two bullet points above), cash buyers and those who are interest rate insensitive, are not pressured by affordability.

Cash buyers can easily (not necessarily do so in every case), artificially increase the median price as mortgage rates wallop anyone who needs a mortgage. 

In contrast, Case-Shiller provides very accurate, yet very lagging information.

 Ten Top Cities – How Much Have Home Prices Declined From the Peak?

The Overall Message

1. The top is in.
2. Pending home sales is an outright disaster everywhere. 
3. Affordability due to rising mortgage rates is the key.
4. Home prices are falling, likely much faster than either median price or Case-Shiller report, due to weaknesses in each way of viewing things.

Point four reflects points two and three. 

The combined overall message of median price and Case-Shiller is telling. 

Existing Home Sales Decline 12th Month

No Rebound in Home Sales 

A brief drop in mortgage rates towards 6.0 percent was not enough to entice buyers in January. Buyers and sellers are on strike.

For discussion, please see No Rebound in Existing Home Sales Despite a Drop in Mortgage Rates

Due to closing lags, perhaps there is a steadying or slight uptick next month. But that will not change the overall dynamic.

Buyers want lower prices, but sellers want the prices they could have gotten 18 months ago. Results are as one should expect: Pending home sales fell in all 50 of the most populous U.S. metros. They fell most in Las Vegas (-55.2% YoY), Austin (-49.5%), Portland, OR (-46.9%), Riverside, CA (-45.4%) and Nashville (-45.3%).

And existing home owners do not want to trade a 3.0 percent mortgage rate for a 6.8 percent mortgage.

No 2008 Replay

People are trapped in their homes, but in a much different way than 2008.

In 2008, a big percentage of home buyers had negative equity and walked away from their mortgages. 

Now, all but buyers in the last 18 months or so have positive or at least near-neutral equity. 

Yet, everyone with a mortgage is trapped, equity or not. Who wants to trade in a 2.5 to 3.0 percent mortgage for a 7.0 percent mortgage? 

What About New Home Sales?

New home sales, is also unlike 2008. Due to falling lumber and land prices, the homebuilders can offer interest rate buydowns.

In 2006 and 2007, the builders offered upgrades like “free” granite, larger rooms, bigger backyards, even vacations. 

Now those freebees are more likely to be mortgage rate buydowns to make the price allegedly “affordable”. 

Related Posts 

For many additional charts on Case-Shiller home prices and a discussion of housing, please see Case-Shiller Home Prices Slide Another 0.5 Percent, Actual Drop is Much Worse

For discussion of declines from the peak, please see Ten Top Cities – How Much Have Home Prices Declined From the Peak?

Yesterday, I noted Services Economy Strength Spells More Inflation Troubles for the Fed

Does this at all reflect potential home buyers throwing in the towel, making a decision that saving for a house is pointless? 

In response to my question above …

Whatever the reasons, the Fed is not done hiking and that spells further grief for potential home buyers.

This post originated on MishTalk.Com.

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