Home prices declined sharply in November as higher rising mortgage rates continued to sap demand from the housing market.
Prices in November increased 8.6% from the year-ago period, the smallest gain in two years, according to new data published on Tuesday by CoreLogic.
On a monthly basis, prices actually dropped 0.2% in November.
Prices are now about 2.5% below their spring 2022 peak and are expected to continue falling this year, eventually tumbling into negative territory before rebounding to around 2% or 3% in the spring.
INFLATION EASES MORE THAN EXPECTED IN NOVEMBER TO 7.1%, BUT CONSUMER PRICES REMAIN ELEVATED
“Although home price growth has been slowing rapidly and will continue to do so in 2023, strong gains in the first half of last year suggest that total 2022 appreciation was only slightly lower than that recorded in 2021,” said Selma Hepp, deputy chief economist at CoreLogic. “However, 2023 will present its own challenges, as consumers remain wary of both the housing market and the overall economic outlook.”
The interest rate-sensitive housing market has borne the brunt of the Federal Reserve’s aggressive campaign to tighten policy and slow the economy. Policymakers already lifted the benchmark federal funds rate five consecutive times and have shown no sign of pausing as they try to crush inflation that is still running near a 40-year high.
Mortgage rates have started to inch higher in recent weeks: The average rate for a 30-year fixed mortgage hovered around 6.42% last week, according to the latest data from mortgage lender Freddie Mac. While that is down from a peak of 7% in September, it’s still more than double just one year ago, when rates stood at 3.10%.
Combined with high home prices, the rapid rise in borrowing costs has pushed many entry-level homebuyers out of the market.
A separate report released last month by the National Association of Realtors (NAR) showed that U.S. existing home sales slowed for the 10th straight month in November, tumbling 7.7% from the prior month to an annual rate of 4.09 million units. On an annual basis, home sales plunged 35.4% in November.
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“In essence, the residential real estate market was frozen in November, resembling the sales activity seen during the COVID-19 economic lockdowns in 2020,” said Lawrence Yun, the chief economist at NAR. “The principal factor was the rapid increase in mortgage rates, which hurt housing affordability and reduced incentives for homeowners to list their homes.”