Upward Mobility: Nation’s Home Prices Reverse Course

HOUSTON – (By Dale King, Realty News Report) — As the nation moves into the warm summer homebuying season, there are distinct signs of market price reheating – almost universally in markets across the United States, says the Data & Analytics division of Black Knight in its latest Mortgage Monitor Report. The conclusion is based on the company’s mortgage, real estate and public records data sets.

The restoration of healthier home prices is widespread, says the report, with more than half of the 50 largest U.S. markets seeing prices at or above 2022 peaks. “Five consecutive months of gains have completely reversed the pullback in home prices that began in July 2022,” reports Black Knight Vice President of Enterprise Research Andy Walden.

But one big America metro is still trailing the pack, he said: Austin, Texas, which once led real estate sales with soaring home prices.

“Austin, Texas, remains the notable exception,” Walden noted. “Inventory there continues to run above pre-pandemic levels, putting downward pressure on prices, which have fallen to -13.8 percent below its 2022 peak — the largest gap of any market. Just eight of the top 50 markets in the nation are currently more than 5 percent below last year’s peak price.”

According to the Black Knight report, Houston’s home price structure has basically returned to its 2022 peak level. Dallas is still down about 3.5 percent, which Walden labels a “moderate decline.” San Antonio, he said, is showing a “slight increase” in the price tags on for-sale houses.

While those figures are still well below peak levels across the West and in many pandemic boom towns, price firming in recent months has begun to close those gaps, said Walden.

“There is no doubt that the housing market has reignited from a home price perspective. Firming prices have now fully erased the pullback we tracked through the last half of 2022 and lifted the seasonally adjusted Black Knight Home Price Index (HPI) to a new record high in May.”

“Unlike Austin,” Walden noted, “for-sale inventory is moving in the other direction in much of the country. Active listings have deteriorated in 95 percent of major markets so far this year and, overall, we’re still down more than 50 percent from pre-pandemic levels.”

New construction starts and completions were both strong in May, which is welcome news. However, housing affordability remains dangerously close to the 37-year lows reached late last year, despite the Federal Reserve’s attempts to cool the market.”

The challenge for the Fed now, he declared, is to chart a path forward toward a ‘soft landing’ without reheating the housing market and reigniting inflation.

But the same lever used to reduce demand – that is, raising rates – has not only made housing unaffordable almost universally across major markets, it has also resulted in significant supply shortages by discouraging potential sellers unwilling to list in such an environment, further strengthening prices.

At this point, even if rates come down, but not so sharply as to entice potential sellers out of their sub-3.5 percent mortgages, it could risk a widespread reheating of home prices across the U.S.

Last week, Freddie Mac reported the 30-year fixed-rate mortgage averaged 6.96 percent as of July 13, up from 5.5 percent a year ago.

“Mortgage rates increased to their highest level since November 2022, the last time rates broke seven percent,” said Sam Khater, Freddie Mac’s Chief Economist. “Incoming data suggest that inflation is softening, falling to its lowest annual rate in more than two years. However, increases in housing costs, which account for a large share of inflation, remain stubbornly high, mainly due to low inventory relative to demand.”

Digging deeper into the Black Knight HPI data for May, the month’s report looks at the significant degree to which many Western markets – which had been seeing sharp declines in 2022 – have begun to reheat this spring. San Jose, Calif., is a noteworthy example. Homes in the metro shed 10 percent of their home value faster than any market on record last year. Now, with inventory levels beginning to plummet again, prices are reheating and were reported at +1.4 percent in May.

San Jose experienced the second largest month-over-month price gains of any market on a seasonally adjusted basis, said Walden. And San Jose is not alone among western markets: San Diego (+1.1 percent), Los Angeles (+1.0 percent), San Francisco (+.9 percent), Seattle (+.9 percent) and Sacramento, Calif., (+.8 percent) all experienced exceptional home price growth in May as well.

Hartford, Conn. (+1.6 percent) – which faces a combination of relative affordability, strong demand and the deepest inventory deficit of any U.S. market (-82 percent) – continues to lead price growth overall.

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