Rising US home prices pose affordability challenges for many buyers, with the national median price for existing single-family US homes reaching $406,900 in the third quarter-a 2.2% YoY increase. Over 80% of metro areas recorded price gains, some with double-digit jumps.
Despite homeowners accumulating wealth, National Association of REALTORS (NAR) Chief Economist Lawrence Yun warns that the persistent housing supply shortage may hinder homeownership dreams for younger adults.
In the third quarter, buyers also faced higher borrowing costs, with 30-year fixed-rate mortgages ranging from 6.81% to 7.31%, leading to a 19.2% YoY increase in monthly mortgage payments.
In 46% of NAR-tracked markets, a family needs a qualifying income of at least $100,000 for a typical home with a 10% down payment.
Meanwhile, families with an income under $50,000 can afford a typical home in only 2.7% of markets.
Areas With Surging US Home Prices
In the third quarter, the South led in existing home sales, and prices increased by 1.7% compared to last year, per NAR's report. However, the Northeast and Midwest saw the most significant price growth, with a 5.2% annual gain each. In the West, prices had a more modest increase of 0.6% during the same period.
Looking at specific areas, the top 10 metros with the highest year-over-year price increases all had gains of at least 12.6%. Fond du Lac, Wis., was at the top with an 18.9% price increase compared to a year ago, according to NAR's report.
Notably, eight of the ten most expensive US markets in the third quarter were in California. The only exceptions outside California were Honolulu and Boulder, Colo.
Areas With Moderating US Home Prices
In the third quarter, less than one-fifth of the 221 markets tracked by NAR, or 17%, reported price declines. This is a notable decrease from the second quarter when 41% of markets experienced declines.
Certain areas that had previously experienced a housing boom saw prices decrease in the third quarter as they stepped back from their pandemic-driven highs. For instance, compared to the previous year, prices in the third quarter dropped by 10.3% in Austin, Texas; 1.5% in Phoenix; 1.2% in Salt Lake City; and 1.1% in Dallas and Houston, according to the report.
Lawrence Yun, NAR's chief economist, notes, "Following the big price changes during the last several years, it's natural to witness momentary swings in prices. Some markets that experienced sizable home price gains since 2020 have turned lower, resulting in temporary relief for prospective home buyers. Also, a few markets in the West that experienced price declines in the prior quarter have seen prices rise again."
US Home Prices Expectations in 2024
Although mortgage rates are still relatively high at 7.28% for 30-year fixed-rate mortgages, the continued demand for US homes has kept prices elevated.
NAR anticipates a drop in mortgage rates to around 6% in 2024, driven by slowing inflation, which is expected to fuel even more demand and maintain high prices throughout the year, according to Lawrence Yun.
Zillow shares a similar forecast, expecting home values to rise 6.5% from July 2023 to July 2024 despite ongoing affordability challenges.
Similarly, Freddie Mac predicts a 0.8% price increase between August 2023 and August 2024, followed by an additional 0.9% gain in the subsequent 12 months.
Freddie Mac attributes part of the price rebound to a "large cohort of Millennial first-time homebuyers reaching prime home-buying age."
However, not all forecasts are bullish on the prices of US homes. Moody's Analytics and Morgan Stanley anticipate a slight decline in home prices in 2024 due to declining affordability and increased home construction.
Moody's Analytics expects median US home prices to decrease by 3.5% between the fourth quarters of 2023 and 2024, cautioning against prematurely celebrating the end of the housing correction.
