Home Buyers Struggle with Rising Prices and Mortgage Rates

Home buyers are facing an increasingly difficult market as both home prices and mortgage rates climb, making it hard to find relief. Over the past month, home prices have continued to rise across the nation, with a few notable exceptions.

National Trends and Price Increases

Nationally, home prices were 4.4% higher in the four weeks ending June 2 compared to the same period last year, according to data from Redfin released Thursday. This ongoing increase highlights that demand for homes remains strong relative to supply, despite mortgage rates surpassing 7% in April and May.

Certain regions experienced even sharper hikes. In Anaheim, California, prices surged by approximately 17%. Nassau County, New York saw a 16% increase, while Newark, New Jersey, Cleveland, Ohio, and Oakland, California all reported about a 14% rise in home prices. These figures come from Redfin’s analysis of the 50 most populous metropolitan areas.

Home prices surged in various regions, with Anaheim leading at 17%, reflecting concerning housing affordability issues, WSJ Print Subscription said.

Market Shifts and Stagnant Listings

Despite substantial gains, signs of a shifting housing market are emerging. Some listings are becoming stagnant due to elevated mortgage rates. Housing costs are causing potential buyers to retreat, noted Redfin data journalist Dana Anderson.

The proportion of sellers reducing asking prices reached its highest level since November 2022, according to Redfin. Additionally, the average home now stays on the market for 46 days, an increase of 2.3% compared to the previous year.

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Declining Prices in Select Metro Areas

In contrast, four of the 50 largest metropolitan areas saw prices fall below year-ago levels, marking the highest number of declines since January. Austin, Texas led the drop with a decrease of about 3%. San Antonio and Fort Worth, also in Texas, saw prices dip by 1.2%, and Portland, Oregon experienced a 0.9% decline.

Higher interest rates and increased supply partly explain these decreases. Austin underwent a significant building boom starting during the pandemic, according to Redfin Chief Economist Daryl Fairweather.

Impact of Property Taxes

Property taxes are another factor influencing these declines. Texas had the sixth highest effective property tax rate in the U.S. in 2021 at 1.68%, per the Tax Foundation. “When values increase, it makes those property taxes more expensive for future home buyers,” Fairweather explained. This situation restrains home price growth and accelerates corrections in the housing market compared to other areas.

Future Outlook for Home Prices

A Fannie Mae survey of over 100 housing and mortgage industry experts predicts that home price gains will slow this year and next. The panel expects national home prices to grow by 4.3% this year and 3.2% in 2025.

Increasing Supply and the Lock-In Effect

Increasing supply is another factor in the housing market equation. Many experts noted that the “lock-in effect,” where homeowners with ultralow mortgage rates are financially incentivized to stay put when rates rise, is diminishing.

“Listings have generally trended upward recently. This indicates that a growing number of homeowners can no longer delay moving,” said Doug Duncan, Fannie Mae’s chief economist. A diminishing lock-in effect “would likely result in a gradual increase in for-sale listings. This would continue the moderation of home price growth over the forecast period.”

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