How Home Values Have Increased Since 2019
20% Drop Their Asking Price
The housing market may finally be showing signs of cooling. Last month in May of 2022, the real estate company Redfin reported that 1 out of 5 sellers dropped their asking price, this is 20% of their listings.
While this isn’t a large percentage, it signifies a shift in demand. Instead of buyers receiving multiple offers in the double-digits, it’s now more common to receive maybe two or three.
Case-Shiller Home Price Index
We predict interest rates will reach 6% this summer which will have a further cooling effect. In the meantime, the Case-Shiller Home Price Index reported for the month of March (yes, it’s somewhat of a lagging indicator, but an important one nonetheless) that home prices increased year-over-year by about 21.2% according to its 20 city composite index. The highest increase was recorded in Tampa @ 34.8% and the lowest increase was in Minneapolis @ 12.4%.
Tracking a $300,000 Home Since 2019
Now what’s really interesting is when we look at how housing affordability and home values have changed since 2019. According to a recent CNBC report, if you track the evolution of a $300,000 home, you’ll see a dramatic increase.
- So in May of 2019, a $300,000 home could be financed at an interest rate of 4.33% which is a monthly payment of $1,192 (principal and interest only).
- One year later in 2020, that $300,000 house was now worth $315,000 when mortgage interest rates dropped to 3.41%, when interest rates dropped, making the more expensive home more affordable with a monthly payment of only $1,119.
- As 2021 came around, home values jumped 15% to $362,250 and mortgage rates dropped further to 3.15%, making the payment now $1,245 (still not too bad considering the much more expensive home price).
- And now in 2022, the full shock of the market has been realized with the home now selling for a whopping $438,322 and being financed at 5.5% which brings the monthly payment up to a staggering $1,991.
So in the span of just 4 years, mortgage payments have risen $800 per month as home values have increased by $138,000.
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