by Potomac Wealth Advisors President and founder Mark Avallone says the ‘trickle down’ effect will take effect later this year.
The US housing market suffered its biggest drop in value since 2008 as house prices fell.
That’s according to a new report from real estate brokerage firm Redfin, which showed that the total value of US homes fell from a record high of $47.7 trillion in June 2022 to $45.3 trillion at the end of the year – a decrease of $2.3 trillion, or 4.9 %.
It represents the biggest drop in percentage terms since the 2008 financial crisis, when home values ​​fell by 5.8% from June to December.
During the COVID-19 pandemic, home prices rose at a pace not seen since the 1970s and mortgage rates near record lows. Homebuyers – fueled by stimulus money and a desire for more space during the pandemic – flocked to the suburbs.
Demand has been so strong, and inventory so low, that some buyers have foregone home inspections and appraisals at the height of the market or paid hundreds of thousands over asking price.
WHEN WERE THE LAST STUDIED HOUSE PRICES?
Homes in Rocklin, Calif., December 6, 2022. (David Paul Morris/Bloomberg via Getty Images/Getty Images)
The frenzy stopped when the Federal Reserve the most aggressive interest rate hike campaign since the 1980s began in an attempt to slow the economy and stoke runaway inflation.
So far the interest rate-sensitive housing market has been pushing monetary policy tighter: Although mortgage rates have fallen from a peak of 7.08% in November, they recently reversed that trend and began marching higher amid fears of rising interest rates. . The average rate for a 30 year fixed mortgage It climbed to 6.5% this week, according to data from mortgage lender Freddie Mac.
That’s still significantly higher than one year ago, when rates rose by around 3.92%.
In this aerial view, new homes are completed and under construction on a site in Trappe, Md., Oct. 28, 2022. (Jim Watson/AFP via Getty Images) / Getty Images)
Demand from homebuyers fell as consumers grappled with the steepest mortgage rates in years, putting further pressure on house prices. The average price of a home sold in January was $383,249, down 11.5% from a peak of $433,133 in May, according to Redfin.
“The housing market has lost some of its value, but most homeowners will still reap big rewards from the pandemic housing boom,” said Chen Zhao, Redfin’s head of economics research. She noted that the total value of US homes is still about $13 trillion higher than it was in February 2020, before the COVID-19 pandemic shut down much of the global economy.
Still, even with higher mortgage rates putting homeownership out of reach for millions of Americans, many home prices are still more expensive than they were a year ago. In December, total US home values ​​were still up 6.5% from the same time a year ago.
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