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Home Price Appreciation Returning to Normal After Historic Climb

Home Price Appreciation Returning to Normal After Historic Climb

Single-family home price increases, on a record run since the start of the Pandemic, are returning to normal.

We reported in a previous post back in July that the price of U.S. single-family residences (SFR) increased more than 20 percent in May – the highest annual rate of year-over-year appreciation since home price data was first collected in the 1960s. Figure 1, which tracks annual price changes in median SFR back to 1970, puts the revised May peak at closer to 27 percent.

The latest data from the National Association of Realtors Existing Single Family Home Median Price data shows a return to more normal price appreciation, albeit still above the historical average. This chart includes Black Knight’s estimate for the October median home price.  The current rate of change is running at approximately half of May’s peak and recent data suggest flatter rates to come.

 Figure 1

Source: National Association of Realtors Existing Single Family Home Median Price Data, Black Knight® estimate

The dramatic increase we’ve seen in home prices over the past 18 months can be attributed to a number of factors. These include, but are not limited to:  1) a structural shift in the demand for residential housing from office properties with the new theme of “working from home”; 2) very low levels of available inventory with new home construction far short of new household demand – a disparity dating back to the Great Recession; 3) very low mortgage rates, which have been running at historically low levels since the Pandemic began, and 4) government stimulus checks, which benefitted some households.  We see the first three factors continuing for the foreseeable future, providing continued market support for higher home prices.

Home price appreciation varied by market, both in timing and intensity. To get a timely and more precise a picture of these inflection points, we show our Black Knight Daily Home Price Indexes (HPIs) for a number of major U.S. counties below.

We introduced the Black Knight Daily HPIs last year with the goal of providing near real-time, high-frequency home price data. Black Knight Daily HPIs are based on sales prices reported by real estate brokers and expressed as the median price per square foot of living area to help normalize prices for different-sized homes.  Figure 2 below provides a comparative look at the performance of housing prices in several markets back to the beginning of 2020.

Figure 2

From this graph it is evident that some markets peaked a little later than May (June/July). Those markets include Harris County (Houston) in Figure 3 and San Diego County in Figure 4. Others – Maricopa County, in Phoenix, and Clark County in Las Vegas – are slowing, but have yet to hit their peaks.

Figure 3

 

Figure 4

 

Figure 5

 

Figure 6

Conclusions

Residential real estate appreciation rates are returning to normal levels after hitting unprecedented highs in 2021.  Sales volumes are also returning to normal after 12 months of exceptionally robust activity in the second half of 2020 and first half of 2021. Positive appreciation is still possible, given the persistence of low inventory and low mortgage rates, but indicators suggest a return to a more normal rate of less than 10 percent, consistent with the historical average. Housing prices in the coming year should parallel inflation rates with modest or no “real” return, but with leverage and locked-in mortgages below the inflation rate, homeowners’ real net worth is likely to continue to climb.