A “For Sale” sign hangs outside a home on the west side of Detroit, Michigan.
Fabricio Costantini | Bloomberg | fake images
Home prices are rising faster and faster each month, driven by a drop in mortgage rates.
Nationally, home prices rose 5.2% in November compared to the same month a year earlier, according to a new report from analytics firm CoreLogic. That’s up from a 4.7% annual increase in October.
Northeastern states led the gains, with Rhode Island (11.6%), Connecticut (10.6%), and New Jersey (10.5%) seeing the greatest growth. Areas that experienced year-over-year price declines in November were Idaho (-1.3%); Utah (-0.4%); and Washington, DC (-0.2%).
“This continued strength remains notable amid the country’s affordability crisis, but speaks to the pent-up demand that is driving up home prices,” Selma Hepp, chief economist at CoreLogic, said in a statement. “Markets where prolonged inventory shortages have been exacerbated by a lack of new homes for sale saw notable price increases throughout 2023,” she added.
The lower the mortgage rate, the greater the purchasing power of consumers. While prices are expected to drop slightly late next year, much of that will depend on supply. With current low supply levels and increased demand due to lower mortgage rates, at least for now, prices have nowhere to go but up.
After hitting more than a dozen record lows in the first two years of the Covid-19 pandemic, mortgage rates began to rise sharply in 2022 and hit a more than 20-year high in October of last year. The average 30-year fixed loan rate briefly exceeded 8%. It has since retreated and is now in the high 6% range.
Detroit knocks down Miami
At the city level, Detroit saw the largest annual price increase at 8.7%, surpassing Miami, which reached 8.3%, according to CoreLogic. Miami had held the top spot for 16 months.
“Detroit fell behind in appreciation during the pandemic, so part of this was a recovery,” Hepp said. “Other areas of the Midwest [are] “We are seeing stronger appreciation because they are more affordable.”
While the median home price in Detroit remains among the most affordable in the country, the market is considered overvalued due to local income levels.
Approximately 82% of the country’s 397 metropolitan real estate markets surveyed by CoreLogic were considered overvalued. That means home prices in Detroit are too high compared to local household incomes. In particular, the large cities considered “normal” in assessment were Boston; Chicago; The Angels; and Washington, D.C.
“It really depends on who is buying in the area, and we’ve seen more people with higher incomes buying in those areas,” Hepp said.
Don’t miss these CNBC PRO stories:
