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Making Sense of a Volatile Market
Volatility. It’s a word that has been invoked countless times over the past year with regard to the state of real estate. Whether it’s the result of an uncertain economy, home valuation fears, rising rates, lack of inventory, or a combination thereof, there is no denying that the past few months have caused hesitation, even paralysis, for both buyers and sellers.
FHFA HPI Quarterly Report
To make sense of the market, I feel it is imperative to look at the Federal Housing Finance Agency (FHFA) House Price Index (HPI) Quarterly Report. It provides a snapshot of home price trends across the U.S., and it’s essential for understanding the trajectory of the housing market. It helps buyers and sellers make informed decisions by highlighting areas of growth, stability, and potential investment opportunities.
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Key Highlights of the HPI Report
Annual Growth: The national average of the house price index increased by 6.6% from the first quarter of 2023 to the first quarter of 2024.
Quarterly Gains: The quarter-over-quarter gain dipped to 1.1% in Q1 2024 from 1.5% in Q4 2023, indicating the second consecutive decline in quarterly gains and signs of market softening.
Regional Trends: On an annual basis, 16 of the 100 largest Metropolitan Statistical Areas (MSA) recorded double-digit increases in house prices (refer to page 20), while three MSAs saw declines (refer to page 21). Quarterly declines were observed in 22 MSAs in Q1 2024, up from 13 in Q4 2023 and nine in Q3 2023.
State Performance: House prices rose in all 50 states between Q1 2023 and Q1 2024. The top five states with the highest annual appreciation were Vermont (12.8%), New Jersey (11.6%), New York (10.9%), Delaware (10.7%), and Wisconsin (9.9%). The District of Columbia experienced a decline of -1.5%.
California: House prices increased by 6.28% from the first quarter of 2023 to the first quarter of 2024. Over the past five years, the state has seen a remarkable 50.04% increase in house prices, and since the first quarter of 1991, prices have surged by 321.04%.
Greater Los Angeles: House prices rose by 9.39% year-over-year. The five-year appreciation in this area stands at 51.94%, with an impressive 348.41% increase since the first quarter of 1991.
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The Market Dynamics Today
Even with rates dipping below 7% lately—(hovering between 6-8% over the past six quarters)—the low supply of existing homes for sale continues to put upward pressure on house prices. The U.S. housing market has experienced positive annual appreciation each quarter since the start of 2012. This bodes well for sellers, who can feel confident about a higher listing price, and for buyers, who can feel good about the long-term value.
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Home Values Are Holding Tight
Headlines suggest that some sellers are lowering their asking prices. However, a significant difference exists between lowering an asking price and declining home prices. Current data shows a range of price appreciation forecasts from major forecasters like Fannie Mae and Freddie Mac, with an average expectation of 3% price appreciation for the year.
Overall: Forecasters predict 3% to 5% price appreciation, a normal healthy year for residential real estate.
2024 Home Price Forecasts
Percent Appreciation as of 06/03/2024
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Opportunity Awaits
Caution is the operative word in a volatile market, yet new opportunities are always available for the savvy buyer (or seller). In general, the housing market continues to show resilience with steady annual appreciation despite recent signs of softening. Affordability remains a significant challenge due to high home prices and mortgage rate fluctuation. But on the brighter side, the forecast for moderate price appreciation and improving inventory levels provides a positive outlook for both buyers and sellers in the coming months. Of course, this is just the tip of the iceberg. There is plenty more data and information that we can discuss relative to your own unique situation.