Home prices are rising faster and faster each month, fueled by a decline in mortgage rates.
On a national level, home prices jumped 5.2% in November compared with the same mont a year earlier, according to a new report from analytics firm CoreLogic. That’s up from a 4.7% annual gain in October.
States in the Northeast led the gains, with Rhode Island (11.6%), Connecticut (10.6%), and New Jersey (10.5%) seeing the strongest growth. Areas seeing year-over-year price declines in November were Idaho (-1.3%), Utah (-0.4%) and Washington, D.C. (-0.2%).
“This continued strength remains remarkable amid the nation’s affordability crunch but speaks to the pent-up demand that is driving home prices higher,” Selma Hepp, chief economist for CoreLogic, said in a release. “Markets where the prolonged inventory shortage has been exacerbated by the lack of new homes for sale recorded notable price gains over the course of 2023,” she added.
The lower the mortgage rate, the greater the buying power for consumers. While prices are expected to soften slightly later next year, much of that will depend on supply. At current low supply levels, and demand increasing due to lower mortgage rates, for now at least, prices have nowhere to go but up.
After hitting more than a dozen record lows in the first two years of the Covid pandemic, mortgage rates began rising sharply in 2022 and hit a more than 20-year high in October last year. The average rate on the 30-year fixed loan briefly crossed over 8%. It has since fallen back and is now in the high 6% range.
Detroit topples Miami
On the city level, Detroit saw the largest annual price gain at 8.7%, surpassing Miami, which came in at 8.3%, according to CoreLogic. Miami had held the top spot for 16 months.
“Detroit lagged appreciation during the pandemic so some of this was a catch up,” said Hepp. “Other Mid-west areas seeing stronger appreciation because they’re more affordable.”
While the median price of a home in Detroit is still among the most affordable in the nation, the market is still considered overvalued, due to local income levels.
Roughly 82% of the nation’s 397 metropolitan housing markets surveyed by CoreLogic were considered overvalued. That means Detroit’s home prices are overly high compared to local household incomes. Notably, large cities considered “normal” in valuation were Boston, Chicago, Los Angeles and Washington, D.C.
“It really depends on who is buying in the area, and we’ve seen more higher income folks buying in those areas,” Hepp said.