The U.S. housing market posted the first year-over-year decline in home prices since 2012 as a result of higher mortgage rates.
That's according to a new report from real estate brokerage firm Redfin, which showed that the median U.S. home sale price fell 1.2% in February from the previous year.
"Buyers are struggling because higher interest rates have increased the cost of homeownership, and sellers are struggling because they’re still adjusting to the fact that their home won’t sell for what their neighbor’s did a year ago," said Andrew Vallejo, a Redfin real estate agent based in Austin, Texas. "The drop in prices is bringing more house hunters off the sidelines, but they’re in no rush because rates are high and they have the upper hand."
US HOUSING MARKET SEES $2.3T DROP IN VALUE, BIGGEST SINCE 2008
During the COVID-19 pandemic, home prices soared at a pace not seen since the 1970s with mortgage rates near a record low. Homebuyers — flush with stimulus cash and eager for more space during the pandemic — flocked to the suburbs.
Demand was so strong, and inventory so low, that at the height of the market some buyers waived home inspections and appraisals or paid hundreds of thousands over asking price.
The frenzy came to a halt when the Federal Reserve embarked on the most aggressive interest-rate hike campaign since the 1980s as it tried to slow the economy and crush runaway inflation.
NEW HOME SALES JUMP MORE THAN EXPECTED IN JANUARY TO 10-MONTH HIGH
The interest rate-sensitive housing market has so far borne the brunt of tighter monetary policy: Although mortgage rates have fallen from a peak of 7.08% notched in November, they have recently reversed that trend and started to march higher amid interest rate-hike fears. The average rate for a 30-year fixed mortgage fell to 6.6% this week amid broader volatility in the financial sector, according to data from mortgage lender Freddie Mac. That remains significantly higher than just one year ago, when rates hovered around 4.16%.
Homebuyer demand dried up as consumers confronted the steepest mortgage rates in years, further weighing on home prices. The median price of a home sold in February was $386,721, down 10.5% from a peak of $433,133 in May, according to Redfin.
However, the Redfin economists noted that the "housing market shifted in March" after the stunning collapse of Silicon Valley Bank. Ongoing turmoil within the banking sector, they said, lowered the odds of a steeper peak rate this year, which could lead to lower mortgage rates.
Some economists anticipate even steeper declines in home prices in coming months.
Dallas Fed economists wrote in an analysis published last month that there are risks of a more severe decline within the housing market. They projected that prices could tumble as much as 20% as the highest mortgage rates in two decades threaten to trigger a "deep global housing slide."
