Prices for new and existing homes across the United States have been rising for the past couple of years. This increase has been fueled by several factors: historically low mortgage rates, a low existing home supply, and increased labor and materials costs. Is there relief in sight?
Existing Homes vs. New Homes
Existing homes are defined as homes that are owned and occupied before coming onto the market. These account for more than 90% of total home sales. The National Association of Realtors (NAR) releases data for existing homes monthly. The most recent data for July was released on August 18, 2022.
New homes, as you probably guessed, are newly built homes on the market for the first time. This is defined by the completion of the sales contract and acceptance of the deposit—regardless of the stage of construction. Data for new homes are released monthly from the U.S. Department of Commerce. The most recent figures were released for June on July 26, 2022.
Existing-Home Prices in the U.S. – Still Going Up!
Median existing-home prices in the U.S. have recorded 125 consecutive months of year-over-year increases. This means home prices have been increasing for the last ten years! This is the longest streak on record. The median existing-home price for all housing types in July 2022 was $403,800—just below June 2022's record price of $413,800.
To put this into perspective, last year (July 2021), the median home price was $364,600. That means home prices increased 10.8% in just one year. Three years ago (July 2019), the median home price was just $280,400. That is 44.0% cheaper than today!
So, how long will this continue? Many experts think that we are near the top as affordability becomes an increasing concern. If you compare the average home price to median household income, we are at the highest level in over 70 years. Historically, the average house in the U.S. costs around five times the yearly household income. As of April 2022, the average house costs around eight times the yearly household income. This seems unsustainable. Home prices need to start coming down, or wages need to begin increasing faster.
New-Home Prices in the U.S. – Going Down!
We finally see pricing relief in one housing market area—new homes. Oversupply of new homes in the market and rising mortgage rates have ultimately pushed prices down.
The median sales price of new homes sold in June 2022 was $402,400. This is the lowest reading since one year ago (June 2021) at $374,700 and about 12% below the recent record high in April 2022 of $457,000.
However, three years ago (June 2019), the median new home price was just $311,800. This means the median price of new homes has increased 29% over the last three years, even after the recent drop!
Is the Midwest More Affordable?
When comparing the Midwest to the rest of the country, buying an existing home is much more affordable than building a new one.
The median existing-home price in the Midwest was $293,300 in July 2022. This is 27% cheaper than the U.S. as a whole! When isolating Indiana specifically, the median existing-home price in July 2022 was $248,600, according to Redfin, 38% cheaper than the U.S.! Indiana's median existing-home prices are up 11.4% from one year ago.
It might not shock you that the Midwest is more affordable than the rest of the U.S. However, don't get too comfortable. The median sales price for new homes in the Midwest is higher than in the rest of the U.S. The median sales price for new homes in the Midwest was $412,400 in June 2022, 2% higher than the nation. To make things more interesting, prices for new homes do not seem to be decreasing as they are for the rest of the U.S. The reasons for this aren't entirely clear.
Summary
It's difficult to predict where home prices will go from here, but some experts are calling it the top. If we are at or near the top, it does not mean prices have to crash. Moody's Analytics predicts that next year U.S. home prices will not rise further but will remain at these elevated levels.
How things play out will depend on the future supply of existing and new homes for sale, the health of the mortgage market, and the consumer's financial well-being. If you are looking to sell your home, you might want to do so sooner rather than later. If you are looking to buy, be patient.
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