Forget Those Bargains: Home Prices Rose in February After 7 Months of Decline

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Home prices showed a gain in February. Read on to see how that might impact you as a buyer. 

There’s a reason 2023 has thus far proven itself to be a difficult year to buy a home. Not only have mortgage rates been elevated since last year, but real estate inventory has been very low. And any time there isn’t enough supply of a given commodity to meet buyer demand, the cost of that commodity — in this case, homes — has the potential to rise.

Meanwhile, new data from the S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index reveals that after seven months of decline, home prices rose 0.2% in February compared to a month prior. The index also reported a 2% annual gain in February.

That 2% annual gain was smaller than the 3.7% annual gain reported the previous month. But all told, buyers today should be aware that stubbornly high home prices might make it very difficult to navigate the housing market.

Don’t get in over your head

Many buyers today are turned off by higher mortgage rates. But the reality is that if you can afford mortgage payments at today’s rates, you might still want to move forward with a home purchase. That’s because mortgage rates have the potential to drop over time, and once that happens, refinancing to a new loan with a lower rate may very well be an option.

What could be more of a problem, however, is buying a home that’s overpriced. While you can refinance to a lower mortgage rate down the line, if you buy a home for $600,000 that’s really only worth $550,000, you can’t change your purchase price a few years later. And then you might end up in a tough spot should the need to sell your home arise a few years after buying it.

But even with that said, many people buy a home with the intent to stay a while. So if that’s your goal, you may decide you’ll move forward with a home purchase despite having to pay a premium and a higher interest rate on your mortgage.

But if you’re going to purchase a home today, run the numbers and make sure you’re not taking on monthly housing costs that exceed 30% of your take-home pay. If you go beyond that 30% mark, you might end up struggling to keep up with not just your housing expenses, but your bills on a whole.

And to be clear, that 30% doesn’t just apply to your mortgage payment itself. It should also include recurring, predictable housing expenses like homeowners insurance and property taxes. If you’re going to be paying those on an annual or quarterly basis, break the numbers down by month to make sure you’re not getting in over your head.

When will home prices come down?

The U.S. housing market sorely lacks inventory. And until inventory picks up, it’s unlikely that we’ll see a notable drop in home prices. That makes for a tough situation for buyers — there’s no question about it. But if you take your time to search for the right home, save well for a down payment, and run your numbers so you know what budget to stick to, you might manage to take the leap into homeownership in 2023 despite the many challenges that persist.

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