Home-Buying Competition Pushes Real Estate Prices Higher
Home Prices Inching Higher
The real estate market continues to be a dynamic and competitive landscape, with homebuying competition driving prices higher. Despite muted sales activity in May 2023, impressive price growth was observed, highlighting the resilience of the market. In this newsletter, we will provide valuable insights into home values, regional hot spots, new listing scarcity, and the latest interest rate outlook from the Federal Reserve (Fed).
Home Values Continue to Rise
The housing market experienced robust price growth in May 2023, with the typical U.S. home value climbing 1.4% from April to May. This marks the strongest monthly growth since last June. The value of a typical home now stands at $346,856, representing a 0.9% increase compared to one year ago. Although it is 0.8% below the peak observed last July, it is 3.4% higher than the recent low in January 2023. (See the "Zillow Home Value Index" chart for details.)
Regional Hot Spots
Affordable metro areas in the Midwest showcased the largest monthly home value gains in May 2023. Cities such as Columbus (+2.2% monthly gain), Cincinnati (+2.2%), Detroit (+2.1%), Richmond (+2.1%), and Milwaukee (+2.0%) experienced significant increases in home values.
While prices did not drop on a monthly basis in any of the 50 largest metro areas, smaller gains were observed in cities like Las Vegas (+0.5%), New Orleans (+0.6%), Phoenix (+0.6%), Austin (+0.6%), and San Antonio (+0.7%). Notably, West Coast markets, including San Jose (+1.9%), Seattle (+1.7%), and San Francisco (+1.4%), are rebounding with monthly price gains above the national average. (See the "Regional Hot Spots – Top & Bottom 15" chart for details.)
Although home values in all of the 50 largest metro areas have experienced price increases in May 2023, 27 of these areas have seen a decrease from one year ago. Metro areas such as Austin (-11.2% annual loss), San Francisco (-9.3%), San Jose (-8.4%), Phoenix (-7.0%), and Las Vegas (-6.9%) have been the most affected. Conversely, annual price gains are highest in Richmond (5.8%), Miami (5.4%), Oklahoma City (4.9%), Kansas City (4.1%), and Cincinnati (4.0%).
New Listing Scarcity
One ongoing challenge in the housing market is the scarcity of new listings. In May 2023, there were approximately 23% fewer new listings compared to the same month of the previous year, reflecting a total of around 295,000 listings. This scarcity of new listings has contributed to a decrease in total active inventory, which currently stands at a staggering 46% below May 2019 levels. The low inventory levels have triggered bidding wars, resulting in high sale prices for the limited listings available. (See the "New Listings by Month" chart for details.)
Higher mortgage rates have discouraged homeowners from listing their homes due to increased borrowing costs. Despite these challenges, buyers have remained resilient. Pending sales saw a 9.5% increase from April, narrowing the year-over-year decline to 18% in May 2023. Around 295,000 listings went pending during the month, indicating that the market is far from being at a standstill.
Despite the challenges, buyers have remained resilient. Pending sales saw a 9.5% increase from April, narrowing the year-over-year decline to 18% in May 2023, according to Zillow. Around 295,000 listings went pending during the month, which is in line with 2019 levels, indicating that the market is far from being at a standstill.
Inflation at Lowest Level in Two Years
In May 2023, the inflation rate reached its lowest annual level in over two years, providing some relief to the Fed. The consumer price index (CPI) increased by only 0.1% during the month, leading to a decrease in the annual rate from 4.9% in April to 4%.
Housing costs played a significant role in the monthly CPI outcome, with shelter prices experiencing a notable 0.6% increase. Housing-related expenses account for approximately one-third of the overall weight in the index.
Despite the recent moderation in inflation, Federal Reserve Chairman Jerome Powell has affirmed the likelihood of additional interest rate hikes due to ongoing inflationary pressures. He emphasized that future rate decisions will be data-driven and made on a meeting-by-meeting basis.
What Does it Mean for Investors?
In a competitive market with low inventory levels, it is crucial for investors to stay informed and agile. While challenges exist, opportunities can be found in specific metro areas experiencing significant growth. Conducting thorough market research and partnering with experienced professionals can help navigate the current market conditions.
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