Home Prices Are Falling. Where They Could Hold Up—and Why.

The home prices in spring this year will probably be lower than the previous year, though some markets will be more active than others.

National Association of Realtors reported that the median existing home sold in February, which is the latest month for which there are data available, for $363,000. This was 0.2% below the previous year's levels.

Recent data shows that the decline from the previous year's levels continued in March. In the four weeks ended on the 26th of last month, home prices as measured by Redfin fell about 2% compared to the same period one year ago.

Nationally, prices are being compared to a very high level: according to the National Association of Realtors, the median existing home price reached a record-breaking $413,800 peak in June 2022. The rising mortgage rates in 2022's second half cooled demand for homes, contributing to an 13% drop from the peak of June.

Selma HEP, CoreLogic's Chief Economist, predicts that prices this spring will be lower than last year. Hepp expects CoreLogic's Home Price Index prices to drop from last year starting in April. Small declines will continue until May or even June. She says that from then on we will start to see a slight increase in the year-over-year change.

In the face of falling prices and mortgage rates, there are signs that the demand for homes has increased - though not as fervently as it was earlier in the pandemic. Mortgage Bankers Association reported last week that home purchase applications have increased for the fourth consecutive week, though they are still well below their levels from a year ago. The National Association of Realtors reported that pending home sales had increased for three months in a row. Redfin said that its demand index reached its highest level in May during the four-week period ending March 26.

CoreLogic's Hepp says that there are many buyers, and this is important for the growth of home prices. In many markets, prices of homes are holding steady due to the large number of first-time buyers.

The supply is also low. Redfin counted active listings for the four-week period ending March 26, which was approximately 698,000. This is up 13% from the previous year, but well below the norm. Sellers are reluctant to list. New listings for the four-week period ending March 26 were 22% less than last year's same period.

The way these factors are translated into prices differs by market. Redfin's deputy chief economist Taylor Marr stated in a statement on Friday that prices are rising in some areas while in other places they are falling by double digits. One thing is true nearly everywhere: it's hard to find a well-priced, desirable home for sale.

Two closely followed, but lagged, home price indices released pricing data last week that illustrate some regional pricing disparities. San Francisco was the most affected by the S&P CoreLogic Case Shiller indexes in January, with prices falling 7.6% from a year ago. Seattle, San Diego (Calif.), Portland (Ore.), and Seattle also saw a drop in prices from the previous year. Prices in Phoenix were flat. The national index as a whole was 3.8% higher compared to a year ago.

The Federal Housing Finance Agency’s Purchase-Only Index for House Prices, a separate measure, revealed that the strongest gains in January were seen in the South Atlantic and New England areas of the country, where gains of 9.6% and 6.1% respectively compared to the previous year. New England was one of the few divisions where price increases increased from the previous month.

Realtor.com shows that New England metropolitan regions remain popular. They occupied seven of the top ten hottest U.S. market in March. The ranking compares the supply and demand factors of 300 metropolitan areas. News Corp. owns both Barron's and Realtor.com.

Hannah Jones, Realtor.com's economic data analyst, believes that New England is attractive because of its relative affordability compared to cities such as New York and Boston. Jones notes that a lot of people have changed their work environments due to the shift from traditional work places to hybrid and remote work models. The change in working habits allows buyers to explore options outside of the big cities.

Manchester, N.H. is, for example, "still a very strong seller's marketplace," says Tim Morgan. He's a broker with Hollis-based Re/Max Innovative Properties. Morgan notes that homes that are ready to sell receive multiple offers. Homes listed below $650,000 tend to be the most competitive.

Morgan reports that the metropolitan area has experienced an increase in demand from neighboring states. The metropolis was rated as the second hottest market out of 300 by Realtor.com. The broker reports that a number of buyers are coming from Maine, Massachusetts and New Hampshire. They are hearing the market has mellowed a bit and it's easier for them to move.

Morgan says that even in hot markets such as Manchester, the conditions are not the same as they were during the earlier buying frenzy of the pandemic. Houses which are overpriced may end up sitting on the market. Morgan says that sellers who have overpriced their home, thinking spring 2021 is the right time to sell it, are still not hitting the mark.

Jones, of Realtor.com, says that the housing market will be much calmer this spring. It won't be as hot and frenzied as it was in previous years. We expect the price growth to remain moderate, as long as mortgage rates are high and buyer demand is low.