US: House prices fell The Most in 11 years

According to a report by real estate company Redfin, March saw the biggest monthly drop in home prices in 11 years, with a decline of 3.3% year-on-year across the US.

The US housing market has recently been hit hard by a variety of factors that have resulted in a sharp drop in home prices. According to a report by real estate company Redfin, March saw the biggest monthly drop in home prices in 11 years, with a decline of 3.3% year-on-year across the US. This fall in prices has been particularly pronounced in areas that have been most affected by the pandemic, such as the San Francisco Bay Area.

However, the drop in home prices is not entirely unexpected given the recent rising interest rates, low inventories, and a decrease in demand for homes. Although property prices have typically been on an upward trend in recent years, many regions experienced record highs in May 2021 when mortgage rates were significantly lower. For example, home prices in Boise surged to a record 40.9% in May 2021. Since then, however, mortgage rates have risen sharply after the Federal Reserve (Fed) raised its rates several times. The average fixed rate for a 30-year mortgage, for instance, has increased to 6.54%, compared to 4.17% a year ago.

US: House prices fell The Most in 11 years

The recent rise in interest rates has pushed many potential buyers and sellers out of the market, leading to a decrease in the number of new homes for sale, which fell by 23.3% in March compared to the same period a year ago. This decrease in supply coupled with a decrease in demand from potential buyers has made the housing market especially gloomy, despite the decrease in property prices.

The decrease in supply is mainly due to difficulties faced by sellers when interest rates rise. Some are afraid to sell because they have mortgage debt anchored to a particular rate, and it is almost impossible to find a new loan with the same interest rate. A survey by Realtor.com revealed that more than 75% of sellers would have to stick with their current homes while half of them wait until interest rates drop to sell.

The rising interest rates have also affected the number of transactions that are being canceled. About 55,000 transactions were canceled in March, making up 14.8% of the total number of homes under contract, where buyers have put in bids that the seller accepts, but they are yet to close the sale. This is lower than the peak of 16.8% set in October 2022 but still substantially higher than a year ago when the cancellation rate was only 11.2%.

The US real estate market has faced significant challenges that have led to a sharp decline in property prices recently. The factors that have brought about this decline include rising interest rates, reduced inventories, and a drop in demand for homes. Although the lower prices may seem appealing to some, the difficulties confronting buyers and sellers mean that the sector remains in a state of uncertainty.