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With home prices experiencing their biggest drop since 2008, is now the time to buy?
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According to a recent report from Redfin, home values dropped 4.9% in the second half of 2022, making the $2.3 trillion drop the biggest since 2008. Now that prices have decreased, what does this mean for potential buyers and homeowners? Let’s take a deeper dive into this data.
What does this mean for potential buyers?
The good news is that any drop in value means that homes may become more affordable. A price drop can provide home buyers with more buying power, meaning they can purchase more house for their money than they normally would be able to do at higher home prices.
The bad news? The drop in value is due to a decrease in home buyer demand, primarily because of rising mortgage rates. The average 30-year fixed mortgage rate was 6.36% in December 2022. While not as high as the 7.08% in November 2022, it is over double the rate from the beginning of the year.
This rate increase means the monthly mortgage payment for a $500,000 home is $1,000 more than it was at the start of 2022. So even though prices have gone down, monthly mortgage costs have not, making a home purchase still unaffordable for many first-time buyers.
What does this mean for homeowners?
Even with this drop in value, the total value of the U.S. homes is still $13 trillion higher than it was in February 2020, right before the COVID-19 pandemic hit. The total value of U.S. homes at the end of 2022 was $45.3 trillion, down 4.9% from a record high of $47.7 trillion in June of 2022. While this is the largest drop in percentage terms since 2008, the total value of U.S. homes was up 6.5% year over year in December 2022 and close to 30% higher than before the pandemic.
If you’re looking to sell your home soon, it might be worth doing some research into both current and past market trends so that you can get the most out of your sale price. The value of certain areas have fallen more than others. The Bay Area saw the greatest decrease compared to other metropolitan areas, with San Francisco falling 6.7%, Oakland, 4.5%, and San Jose 3.2%. New York and Seattle also saw slight declines.
Pricey coastal tech hubs have fallen more in value than other markets, especially the suburbs. As the most expensive markets in the country, they had more room to fall, saw a greater number of people move from the area, and were hard hit by the recent tech layoffs. This steep decline in prices is good news for sellers as buyers are being lured back. Unfortunately for buyers, high interest rates may offset any potential price decreases. It is important to understand the other expenses of homeownership and research all your options so you can make an informed decision.
Buying a home is a big decision, but it doesn’t have to be a stressful one. After you educate yourself on the home-buying process, get your finances in order and get pre-approved for a mortgage, so you know how much house you can afford. The housing market is always changing, and prices may continue to be volatile in the future. Doing your research and getting prepared will help you move on a home purchase when the right opportunity presents itself.
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