For the first time in years, home prices in the United States fell from June to July of this year. Some experts believe this could be a trend and not just a one-off, partially fueled by higher interest rates. This news will mean different things to different people, depending on what your stake in the real estate market is like. Regardless, here’s what you need to know:
Home Prices Dropping
The rising cost of real estate was a major story earlier in the year, but it appears that trend may be over. Recently, the S&P CoreLogic Case Shiller National Home Price Index, which measures the average change in home prices across the country, reported a 0.3% drop from June to July. This is the first decline reported since Jan. 2019. Adjusting for season, the national index fell by 0.2%, which was the first monthly decline by this measure in more than a decade.
In an effort to fight rampant inflation, the Federal Reserve has increased interest rates on multiple occasions this year, representing some of the largest hikes in decades. Essentially, banks led each other reserve balances on an overnight basis. The Federal Reserve has increased interest rates on these loans. In addition to fighting inflation, this also has the effect of increasing mortgage rates. In the past year, the average rate on a 30-year fixed mortgage has increased from 2.88% to 6.29%. This increase prices a large number of people out of the home buying process. With a smaller pool of potential buyers, demand drops, and prices eventually follow.
Bad Time for Speculation
Since the Case-Schiller Index reports on a two-month delay, there’s a chance we’ve already seen additional drops in average home prices. It’s also important to remember that contracts are locked into place a month or more before the sale is closed, so the prices were already dropping before the most recent rounds of interest rate hikes, almost guaranteeing we’ll see further home price decreases.
All this adds up to one inconvenient conclusion: this is a bad time for real estate speculation. You can’t reasonably expect the value of a home to increase under current conditions unless you’re doing some major renovation work.
With all the interest rate hikes, there’s a chance the value of your property has changed in the past year. If you’re in need of a professional appraisal on your residential or commercial property, Atlas Valuation can be of service. Our specialists have experience in a wide variety of commercial real estate appraisal. Call 334-737-6993 to get started today!