Since 2020, home prices have increased by 42%, while inflation has risen by 16%, according to a study by the real estate brokerage firm Home Bay.
To put that into perspective, spending $100,000 on a home in January 2020 would require spending $142,249 today, Home Bay reported. Meanwhile, spending $100,000 on goods and services in 2020 would require $113,739 today.
The combination of rising prices for basic goods as well as homeownership could be creating a very difficult situation for potential first-time home buyers, Home Bay suggested. The median sales price of a home in the third quarter of 2020 was $337,500, Home Bay found. By Q4 2022, that price had increased to $468,000.
“The value of homes has increased exponentially over the past three years as demand outpaces supply,” Home Bay said in its report.
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Home prices expected to drop through 2023
Despite rising home prices in recent years, the trend may reverse through the rest of 2023, reports have suggested.
“Home prices have started to decline month over month since Q4 2022,” Home Bay said in its report.
In addition, home prices are projected to decrease by 1.6% through this year, according to a panel of economists and housing experts polled for the Zillow Home Price Expectation (ZHPE) survey.
“The housing market is resetting,” Zillow said in its report. “Though we’re seeing early signs of renewed buyer interest early this year, prices should generally flatten out in 2023, helping buyers to catch up. The sheer number of people in the first-time home buyer age range and a lack of inventory should limit price declines. A return to more normal growth would be welcome after the rollercoaster ride that home prices have been on lately.”
Plus, home prices increased by 4.4% year-over-year in February, marking the slowest price growth since before the COVID-19 pandemic began, according to an analysis by CoreLogic.
In addition, 63% of experts on Zillow’s panel said they believed rates for 30-year fixed-rate loans would have peaked in Q1 2023 until 2025. Still, home prices are expected to spike back up at an average rate of 3.5% per year from 2024 to 2027.
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Inflation has cooled, but remains a concern
Despite projections of declining home prices, some potential home buyers could still struggle with high inflation. The prices of goods and services increased by 5% year-over-year in March, based on the latest Consumer Price Index (CPI) report. That marked the smallest 12-month increase since the period ending May 2021, the Bureau of Labor Statistics (BLS) reported. Still, inflation remains a concern for many Americans, reports have suggested.
In fact, inflation has been the top stressor for 74% of workers around the globe, a Fidelity Investments analysis found.
“Inflation has also made it difficult for potential buyers to afford homeownership as lenders have increased mortgage rates and tightened lending standards,” Home Bay said in its report.
In addition, almost three-fourths of Americans (73%) said inflation has impacted their plans to purchase a home, according to a study by Real Estate Witch. And 27% of Americans have skipped meals, while 22% have avoided medical appointments or treatments to save money, Real Estate Witch found.
In an attempt to lower inflation, the Federal Reserve has increased interest rates multiple times throughout 2022 and into 2023. Most recently, the Fed increased interest rates by 25 basis points despite pressure in the banking sector.
“Inflation remains too high, and the labor market continues to be very tight,” Fed Chairman Jerome Powell told reporters at a press conference. “My colleagues and I understand the hardship that high inflation is causing, and we remain strongly committed to bringing inflation back down to our 2 percent goal.”
Fed officials have also expressed possibly moving toward an easing of monetary policy following the collapse of SVB bank and its fallout on the banking industry.
“Events in the banking system over the past two weeks are likely to result in tighter credit conditions for households and businesses, which would in turn affect economic outcomes,” Powell said. “It is too soon to determine the extent of these effects and therefore too soon to tell how monetary policy should respond. As a result, we no longer state that we anticipate that ongoing rate increases will be appropriate to quell inflation.”
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