Is America’s Sky-High Housing Market Headed for a Price Correction?

U.S. home prices rose 18.8 percent in 2021, according to the S&P CoreLogic Case-Shiller U.S. National Home Price Index. During the first three months of 2022, home prices continued their upward trajectory. According to the National Association of Realtors (NAR), the “median existing-home price for all housing types in March was $375,300, up 15.0% from March 2021 ($326,300), as prices rose in each region. This marks 121 consecutive months of year-over-year increases, the longest-running streak on record.”

Despite surging home prices, there are growing concerns regarding the overall health of the U.S. real estate market as the pace of sales cooled in recent months amid fast-rising mortgage rates and continuing supply shortfalls. Recent analysis by Redfin suggests that at least some homebuyers have moved to the sidelines. But the same analysis suggested that around 54 percent of homes still sold above their list price.

Given the outsized role that the housing sector plays in the U.S. economy, it is worth considering whether we are approaching an inflection point in the real estate market. Indications that the Federal Reserve has finally realized that it needs to front-load rate hikes to curtail surging inflationary pressures have caused the bond market to reset interest rate expectations. Consequently, the 30-year mortgage rate recently surged past the 5 percent level (average mortgage rates are up 2 percent since December 2021). (read more from “Is the Housing Market Headed for a Price Correction” HERE)