Home price growth slows but demand remains strong

Annual home price growth increased by its slowest pace in over three years, but not necessarily due to waning buyer demand, according to Fannie Mae.

The government-sponsored enterprise’s first-quarter Home Price Index climbed 4.7% on a year-over-year basis, slowing further from a revised 8.6% rise three months earlier. The rate of growth decelerated to a level not seen since late 2019. 

Housing costs reached a high in 1Q 2022, before beginning a decline that has now continued four straight quarters coinciding with mortgage rates that are now up more than twofold since early last year.   

“As expected, the annual rate of increase in home prices has slowed dramatically in response to the rapid and significant increase in interest rates,” Fannie Mae Chief Economist Doug Duncan said in a press release.

On a quarterly basis, prices grew a seasonally adjusted 1% compared to a revised flat outcome of 0% in the final three months of 2022. In the third quarter last year, prices inched up 0.1%. 

homes vegas
Homes in the Summerlin neighborhood are seen in this aerial photograph taken over Las Vegas, Nevada.

Roger Kisby/Photographer: Roger Kisby/Bloomb

Growth trends to start the current year show the existence of “pent-up mortgage demand, despite ongoing affordability constraints,” which is keeping housing values from pulling back even more steeply, according to Fannie Mae.

“Even though mortgage rates remain elevated compared to the previous few years, the acute lack of housing supply remains supportive of home prices,” Duncan said. 

Inventory is kept low, though, largely due to the “lock-in effect” among homeowners reluctant to give up their current low mortgage rates in order to make new purchases, Duncan noted. In other recently released reports, real estate researchers at Realtor.com, Discover Home Loans and Zillow noted the same phenomenon and the role it was playing in both supply and affordability concerns. 


The sluggishness of the existing-home market and resilient demand for housing from potential buyers appears to be leading some of them to instead search for opportunities among new single-family constructions. Newly built homes account for close to one-third of total housing inventory, compared to a historical average of about 10%, according to the National Association of Home Builders.

Net new supply to housing stock should be forthcoming as well based on U.S. Census Bureau measures of single-family permits, starts and completions in March, according to Odeta Kushi, deputy chief economist at First American. All came in higher month over month, which should lead to net new supply to housing stock. “Good news for a supply-starved market,” she said in a statement. 

Homebuilder sentiment is also improving in 2023, with a key measure of how the industry views business conditions picking up every month so far this year. Although still well below readings of 2021, the monthly survey conducted by the National Association of Home Builders and Wells Fargo drifted lower each month last year before beginning its turnaround in January.

Some of 2023’s brighter outlook is likely attributable to an uptick in sales, as loans taken out to purchase newly built single-family homes increased again in March on a yearly basis, finishing higher for the second month in a row, the Mortgage Bankers Association said.

Purchase mortgage applications for new constructions rose 0.6% compared to a year earlier, while on a month-to-month basis, volumes jumped 10%, according to MBA’s Builder Application Survey, which tracks data from lending subsidiaries of homebuilding companies. In February, the association’s findings showed a 1.2% annual increase and 4% from the prior month.  

“New-home sales will be key to the housing market recovery in 2023, as they account for an increasing share of purchase activity, as homebuilders maintain construction levels and offer concessions for buyers,” said Joel Kan, MBA vice president and deputy chief economist, who also noted the lock-in effect’s impact in suppressing sales of existing properties. 

Conventional loans made up 66.4% of new-home loan applications, while government-sponsored mortgages were used for the other 33.6%. Applications backed by the Federal Housing Administration garnered 22.6% of volume, while the shares insured by the Department of Veterans Affairs and U.S. Department of Agriculture came out to 10.7% and 0.3%.

The average size recorded from applications during the month, meanwhile, eased back by less than a tenth of 1% to $406,953 from $407,015. The MBA estimated 65,000 new homes were sold in March, up 6.6% from 61,000 transactions a month earlier. 

Despite the early 2023 upturn, MBA’s estimate of new single-family property sales decreased to a seasonally adjusted annual rate of 666,000, down 3.2% from 688,000 in February. A promising start does not necessarily remove many of the obstacles still ahead, including rate uncertainty, elevated costs and supply-side challenges, economists remarked. 

“While there was some positive news for single-family homebuilding this month, it’s not yet clear if a sustained recovery is on the horizon,” Kushi said.

Similarly, Duncan sees a looming recession later this year contributing to a slowing market. “We continue to expect a pullback in single-family construction as the year progresses,” he said in a commentary on residential homebuilding data.


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