Home Prices: Which Direction?

Highlights

  • Home Prices in the US have rebounded from the 2007 crash.
  • Home Prices vary greatly from region to region.
  • Check home prices in your desired area before shopping for an affordable mortgage.
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Comparing Home Prices

Are home prices going to go up? Is it a good time to purchase a home? Anyone looking to buy a house knows that home prices fluctuate. Home prices vary by state, county, and neighborhood.

When shopping for a home, it is essential to be familiar with home prices and trends. When someone tells you home prices are skyrocketing, that may be true, but then again, it just may not be accurate. The best way to verify the market prices is to check out online sites, speak to real estate agents, and check out open house events.

If you are just in the beginning phase of buying a home, shopping for a mortgage,  and trying to figure out what you can afford, then it is a good idea to understand a bit about home prices.

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US Home Prices: Up, Up, and…?

Home prices, in general, are on the rise. Many areas face a shortage of affordable housing, creating strong pressure on prices. According to the National Association of Home Builders, the median home price in the US, as of the end of 2017, was $255,000. According to the US Census Bureau, 

The median sales price of new houses sold in February 2018 was $326,800. The average sales price was $376,700.

According to the S&P/Case-Shiller US National Home Price Index, home prices increased month over month during the calendar years 2016-2017. On a year over year basis, home prices are rising by about 5-7%.

Source: S&P Dow Jones Indices LLC, S&P/Case-Shiller U.S. National Home Price Index [CSUSHPISA], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/CSUSHPISA, April 1, 2018.

Between 1/2000 and 2/2007 home prices in the US increased by 83%. After hitting a peak in 2/2007, home prices in the US plummeted by 26%, hitting their lowest mark in 2/2012. Since, then, home prices passed the previous high of 2/2007, and are 44% higher the lowest level.

Source: S&P Dow Jones Indices LLC, S&P/Case-Shiller U.S. National Home Price Index [CSUSHPISA], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/CSUSHPISA, April 1, 2018.

Home Prices by Region - Not a Uniform Picture

Home prices do vary by geographic region. The Federal Housing Finance Agency (FHFA) publishes a variety of Home Price Indices (FHFA HPI), based on data they collect from loans backed by Fannie Mae and Freddie Mac. (For details about the various regions check out this pdf ). 

According to their All-Transaction HPI, the Pacific area showed the most significant increase. On the other hand, the East North Central Area was relatively flat. The following graph shows home price movements between 2001 and 2017.

source: https://www.fhfa.gov/DataTools/Downloads/Pages/House-Price-Index.aspx

Peaks and Troughs - Home Prices in 2 Census Areas

Housing prices fluctuate greatly over different areas. For example, the Pacific area shows the greatest fluctuations. Home prices doubled in the first period, then dropped by 33% and have since increased (until Q4 2017) by 60%. The graph below shows housing price movements for two census divisions, Pacific and East Central as well as the total US, over three periods:

  • Q1 2001 thru Q2 2007 (when housing prices peaked)
  • Q2 2007 thru Q2 2011 (when housing prices reached a low)
  • Q2 2011 thru Q4 2017 (housing prices rebounded)

Home Prices: Not Always Going Up

Home prices are constantly fluctuating. Although a massive drop in price is unusual, it can happen as evidenced by the enormous crash in home prices during late 2007.;

Although home prices have consistently risen in the US over the last six-plus years (from late 2011 through the beginning of 2018), there is no guarantee that prices will continue to increase.

Recent history has taught any mortgage shopper that they should not rely on rising home prices to pay off an unaffordable mortgage. An economic crisis can set off a situation of unaffordable mortgage payments, delinquencies, foreclosures, growing supply in homes, drop in demand and plummeting prices. Furthermore, buying and selling a home involves high costs, which will take away from any paper gains.

Before purchasing a home, remember to shop around and find an affordable home that meets your budget.

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