REAL ESTATE ANALYSIS
HOW THE RESIDENTIAL HOUSING MARKET STOOD UP AGAINST
INCREASING DEMAND, INFLATION, AND RATE INCREASES.
REAL ESTATE ANALYSIS
HOW THE RESIDENTIAL HOUSING MARKET STOOD UP AGAINST INCREASING DEMAND, INFLATION, AND RATE INCREASES.
OVERVIEW
The real estate market has been on a wild ride these past few years as a direct result of the Coronavirus pandemic that had profound impacts on the housing market. The shift to remote work left many Americans discovering that home is not only where the heart is but also where work is, and for those with children, often where the school is as well. Whether it was the need for more space or no longer setting location requirements based on a daily commute, the real estate market saw increased demand and record sale prices during 2020-2021.
In 2022 many Americans returned to the office in some capacity, and the Federal Reserve began to raise interest rates which subsequently raised mortgage rates in an attempt to help slow the market and curb inflation. In this study, we look at Vertical Knowledge’s real estate market data from 2019-2022 for a better understanding of just how the market is settling down in a postpandemic environment.
REAL ESTATE COLLECTION DETAILS
Vertical Knowledge tracks data related to residential property listings nationwide from multiple real estate listing websites. The data collected includes sale and rental price, property type, status, location details, bedroom and bathroom counts, square footage, and listing URLs.
This collection allows users to leverage data to better understand the housing and rental market’s health, growth, and potential headwinds. Results are also used to provide insight into brokerage performance and asset pricing on a localized basis.
HOME PRICES CONTINUED TO RISE IN 2022
While the market began to stabilize in 2022 and was showing the first signs of decreasing home prices, even homebuyers who bought in late 2021 at premium prices saw their home prices go up in 2022, but at a slower rate. While home prices slowed down, the nationwide average for home prices rose by 12% (Chart 2).
Looking at home prices over a longer timeframe (Chart 3), the overall market shift is blatantly apparent, with many states showing 30%+ in appreciation of home sale prices since the start of the COVID-19 Pandemic in 2019.
*Due to current state laws, non-disclosure states are unable to be displayed in graphics above due to inability to access final sale pricing.
HOMES CONTINUE TO SELL ABOVE MARKET ESTIMATES
Even though the market has begun to normalize, the market continues to report home values far above historical norms.
Historical and algorithmic estimates of home values continue to lag current home values. Due to the rapid change in market conditions and the subsequent reversal of home sale prices, most historical price models will continue to grow outdated.
While market estimates have room for error, leading market listing sites state that their estimates have less than a 3% margin of error.
Warmer states such as Alabama, Georgia, and South Carolina not only saw a minimal decrease in sales sales volume, but homes also continued to sell well above market estimates throughout 2022 (Chart 4). New Hampshire, on the other hand, saw a significant slowdown in overall home sales in 2022. However, final sale prices were much higher than real estate market estimates.
States such as Idaho and Utah, which saw a drastic decrease in sales volume over 2022, had minimal deviation in final sale price from market estimates.
MEDIAN HOME SALE VALUES
For the first time in 5 years, the market saw a decrease in the median home sale price in Q3 and Q4 of 2022.
After the median home sale price steadily climbed in 2020 and then exploded in 2021, the US median home value peaked in June of 2022 at a price point of $346,000. Shortly after that, the median home price began to fall nationwide in the second half of 2022 and into the start of 2023 (Chart 5).
AVERAGE-SIZED HOMES HAD THE BEST RETURN
The median average US single-family home is estimated at around 2,600 square feet in size. We found that homes within the median average size were the most impacted by market conditions, with a 28% increase in appreciation of the median value over a three-year period (Chart 6).
Smaller-sized homes (typically condos or townhomes) saw moderate increases in value during the 2021 and 2022 period, while large-size homes have seen a steady decrease in sale price.
MARKET IMPACT ON RENTAL HOUSING
The national rental-rate trend was reasonably flat throughout 2020 and the start of 2021. Home sale prices climbed over the course of 2021 by almost 20%. Monthly rental rate increases began to rise, with around a 6-month lag time (Chart 7).
By late 2021 the rental market began to see the effects of high home values pricing people out of home ownership, and a dramatic increase in rental rates started. Despite the lag in rental rates compared to increases in home value, the rental rates now appear to be moving with much less latency after the market’s peak. Rental rates have dropped in line with home values over the last six months of 2022.
