For the second consecutive month, annual home prices witnessed an uptick in September, recording a 0.4% increase. The inventory crunch remains evident, with the number of homes available for purchase declining year over year for the third straight month at a rate of 4%, according to Realtor.com.
Though active inventory stands at a stark 45.1% below the pre-pandemic levels of 2017-2019, a silver lining appears with the month-over-month increase of 4.9% in homes for sale during September. This unexpected rise goes against traditional seasonal trends and is largely attributed to an unusual surge in new listings during August.
New listings in September returned to the conventional declines seen between August and September. Even with the sustained inventory challenges pushing prices upwards, an unusual rise in month-over-month price reductions signals potential shifts in the market landscape. Compared to last year's 20.2%, this September saw 17.8% of homes with price reductions, still below the standard levels of 2017-2019. This implies a balanced alignment between buyer and seller expectations, at least in the present scenario.
"An uptick in homes with reduced prices is a small break for buyers on top of the usual seasonal factors that align to make this first week in October the best week to buy. Yet, the larger context remains challenging. Buyers still struggle with the triple threat of rising listing prices, record-high mortgage rates, and limited inventory, making affordability a continued concern," said Danielle Hale, chief economist for Realtor.com. "The number of homes for sale is likely to remain low as higher mortgage rates leave many homeowners feeling 'locked in' to their current rates. Data shows low inventory is pushing many homebuyers toward new homes, but the growth in new construction isn't enough to sufficiently narrow the inventory gap."
A Veros Real Estate Solutions report anticipates that home prices are expected to increase on average 2.2% over the next 12 months, compared to last quarter’s forecast of a 1.7% increase.
“Forecasts suggest that this predicament is here to stay for the foreseeable future, stretching into months, and quite possibly, a couple of years,” said Reena Agrawal, research economist at Veros Real Estate Solutions. “The chief culprit behind this housing conundrum is the expectation of prolonged high mortgage rates."
But demand is still high.
"A noteworthy trend is that a full third of all home purchases transpire through all-cash transactions, underscoring the persistence of home-buying activity," Agrawal said. Furthermore, millennials are making their mark on the housing landscape. These young buyers are not going it alone; many receive substantial financial backing from their affluent baby boomer parents."
The implications are multifaceted for potential homebuyers, sellers, and the real estate market. While the unusual surge in new home listings from July to August resulted in a more abundant September inventory, homes are getting off the market at a swift pace, perpetuating limited inventory and, hence, sustaining high listing prices.
However, against the backdrop of soaring housing costs, smaller cities are emerging as havens of affordability and tranquility. Nine of the 10 strongest performing markets based on Veros analysis boasted median sale prices for existing homes under the $350,000 mark—well below the national median. Rochester, N.Y., tops the list of best performers. The other metros expected to do well are in Ohio, North Carolina, Kansas, and New Hampshire. Each of these metros is projected to appreciate in the 5% to 6.5% range.
