The recent report from Redfin reveals that the total value of homes in the United States has seen a 5% increase over the past year, reaching a staggering $47.5 trillion. This growth in home values comes as a surprise amidst high mortgage rates impacting housing demand.
However, the driving force behind this increase lies in the unbalanced supply and demand dynamics within the housing market. A shortage of homes for sale has pushed up home values, as homeowners are hesitant to list their properties for fear of losing the low mortgage rates they secured before the Federal Reserve's rate hikes in March 2022. This "lock-in effect" has led to a decrease in housing supply and subsequently higher prices.
During the peak of the pandemic four years ago, mortgage rates plummeted to below 3%, sparking a frenzy of home purchases. But with the Federal Reserve maintaining borrowing costs at their highest levels since 2001 to combat inflation, mortgage rates have now soared close to 7% according to Freddie Mac's latest report as of February 2022.
The Redfin Economics Research Lead, Chen Zhao, pointed out, "Despite weak demand from buyers, America's homeowners find themselves in a strong position as they have accumulated significant wealth due to the surge in home values during the pandemic, with a shortage of supply preventing values from declining.
The report indicates that the average value of a home in the U.S. was $495,183 in December, up from $474,740 the previous year.
These estimates were based on Redfin's MLS data and public records covering over 90 million residential properties. The S&P CoreLogic Case-Shiller Home Price Index also supports Redfin's findings, showing a 6.1% year-over-year increase in home prices for 20 major cities in December.
Looking ahead, Fitch Ratings predicts that 2024 will be a critical year for home prices. The credit ratings agency expects modest improvements in new home sales and inventory, indicating a gradual stabilization in the U.S. housing market. Fitch forecasts that national home prices will slow down by 0%-3% this year, following a 5.5% increase in 2023.
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