U.S. home price gains continued to slow in the last month of 2022, showcasing the impact of rising mortgage rates on homebuyer demand, according to the latest CoreLogic Home Price Index (HPI).
On an annual basis, home prices increased by 6.9% in December compared to 8.6% in November and the historically high gain of 20% in April 2022.
On a monthly basis, home prices dropped by 0.4% in December compared to November, according to the report. Price growth is projected to fall 0.2% in January.
Higher mortgage rates, which surpassed 7% in November, kept homebuyers sidelined for much of the second half of 2022 and are likely a major reason why home prices have lost momentum, according to CoreLogic.
"The continued slowing of home prices at the end of 2022 reflects weaker housing market demand, primarily caused by higher mortgage rates and a more pessimistic economic outlook in general," Selma Hepp, CoreLogic's chief economist, said in a statement. "But while prices continued to fall from November, the rate of decline was lower than that seen in the summer and still adds up to only a 3% cumulative drop in prices since last spring's peak."
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Housing demand is slowly returning as mortgage rates edged down to near 6% in recent weeks. The reduction in rates has made it possible for more people to qualify and afford a $400,000 loan — the median home price — compared to last fall, when rates were higher, according to Freddie Mac.
Pending home sales have improved, dropping 23% annually during the four weeks ending January 29, the smallest decline since September, according to Redfin.
There are signs that sellers are returning to the market, too. New listings registered a decline of 17% annually — the smallest decline in over four months, Redfin reported.
"We expect more homebuyers and sellers to gradually return to the market by springtime, but mixed economic news and mixed reactions from the market mean the recovery will be uneven," Redfin Economics Research Lead Chen Zhao said in a statement. "The Fed hiked rates at a slower pace than last year, which means mortgage rates are unlikely to rise further. But it also signaled ongoing rate increases to fight inflation, which will likely prevent the steep mortgage-rate decline that some optimistic buyers have been waiting for."
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Florida — where home prices rose 15.3% annually — saw the highest price gains of any state, according to CoreLogic. This was followed by Vermont and South Carolina, which posted increases of 13.5% and 12.2%, respectively.
Idaho was the only state to post an annual decline in home prices in December, according to CoreLogic. Over the next 12 months, home prices in Salem, Oregon, are at a very high risk of declining, CoreLogic predicted. Home prices in three Washington state metro areas — including Bellingham, Bremerton-Silverdale, and Olympia-Tumwater — also have a very high risk of decline.
"Some exurban regions that became increasingly popular during the COVID-19 pandemic saw prices jump and affordability erode at the time, but these areas are now seeing major corrections," Hepp said. "And while price deceleration will likely persist into the spring of 2023 when the market will probably see some year-over-year declines, the recent decrease in mortgage rates has stimulated buyer demand and could result in a more optimistic homebuying season than many expected."
If you think you're ready to shop around for a mortgage loan or are considering refinancing your loan, you can use the Credible marketplace to help you easily compare interest rates from multiple mortgage lenders and get prequalified in minutes.
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