Why aren’t home prices dropping?

Home Prices: Where are they and why?

 

Current median home values for the end of Q2 2022 was $440,300. Prices according to the Federal Reserve Economic Data shows that prices so far in 2022 have not dropped but only seen an increase of 3.9%. The FED began raising rates in February of 2022 from 0.8% which is where it sat for a few years since 2020. We are currently at 2.33% which is slightly below the high since April 2019 which was 2.42%.

 

 

 

 

We have seen a drop in listing price of existing home sales, however not too drastic, as well as new home sale prices, which had initially fallen sharply with the reaction to a rate hike. Historically this is how prices for newly built homes tend to change. There are more sharp changes most likely due to economic news, and builders trying to align with what is happening. 

 

 

 

Conclusion

I believe that home values may drop for a period of time, but that is not a bad thing. The real estate market has really gone crazy in the last couple years, and is getting to the point where it is unaffordable for many people. Overall it would be good for the economy for home values and inflation to drop a good amount. The historical evidence however, does not show a drastic change in the value of homes, it actually shows a substantial growth over time.

 

 

 

 

 

Interest rates have been trending down since the 1980’s where they were extremely high topping out at 19.1%. If you match that up with they way median home values have gone it seems as though they have fought through the high interest rates with some corrections, but overall continue to gain in value. It seems as though prices are not effected as much through interest rate changes, I believe that this is because they supply and demand does not get unbalanced like many will lead you to believe. That home buyers leave the market but sellers are still there. I believe that with higher interest rates, buyers will leave the market due to affordability, but on the other hand the people who are would be sellers leave also for the same reason, they don’t want to be buyers.

 

 

 

This is why I believe it could be a great time for investors to get into the market and see some great wealth growth. If prices come down, it will make it easier to purchase new investment properties and to grow your portfolio. If you already have a decent size portfolio, I don’t think that this is a time to worry and panic sell just because you think your value is going to drop but rather to pull cash out of you properties and reinvest in more properties as values potentially drop.

While prices are high there are ways to find value add opportunities and ways to force value. To get more ideas on what you could do to fight against high real estate prices check out https://www.mogulpartner.com/2022/08/04/will-home-prices-drop-or-continue-to-soar/.

 

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