In spite of the housing market that has been coming up roses lately, even in the face of COVID-19, but it might be a short-lived affair as widespread unemployment continues to grip the U.S. economy. A new report from CoreLogic today revealed that despite a strong showing in May compared to a year earlier, home prices are actually slated to fall by 2021. This marks the first national decline in nearly a decade, which could signal a drop in home prices after many years of stellar gains.

First Annual Home Price Decreases in Over 9 Years

  • While home prices rose 4.8% year-over-year in May
  • They are expected to fall 6.6% from May 2020 to May 2021
  • Would be the first annual decrease in more than nine years
  • Could signal the end of a very long recovery for home prices

Nationally, home prices were up 4.8% year-over-year in May, per the latest CoreLogic Home Price Index (HPI) Report. To put this into perspective, the May 2020 HPI gain from May 2019 was only 3.6%, so home price growth accelerated and defied many expectations that anticipated the exact opposite.

We’ve had a good run with home prices appreciating, with the HPI increasing every month since February 2012 on a year-over-year basis, chalking a massive 68.3% gain after bottoming in March 2011. However, when you look closely at the increase in real terms adjusted for inflation, home prices are still 6.7% below their 2006 peak in May.

This means that home prices haven’t truly recovered from their 2006 highs, not that prices at that time were based on anything close to resembling reality.

While that tells us that we still have some “legs” in this rally, the lasting negative effects of COVID-19 might create a temporary setback, at minimum. Whether this creates a meaningful end to rising home prices over the past decade is remains in question entirely.

Lower-Priced Home Saw Big Gains

Compare home price gains by individual home-price tiers to see how they performed relative to one another.

The tiers were based on the median sale price:

  • Low price – homes priced at 75% or less of the median
  • Low-to-middle price – homes priced between 75% and 100% of the median
  • Middle-to-moderate price – homes priced between 100% and 125% of the median
  • High price – homes priced greater than 125% of the median

Accordingly, the lowest price tier increased the most, rising 6.9% year-over-year in May 2020, and 107.5% since bottoming in 2011.

The lowest-to-middle-price tier notched a 6.1% gain in May 2020 and an 85% gain since the housing bottom of 2008.

Meanwhile, home prices were up just 5.2% for the middle-to-moderate tier (71.8% since 2011) and 4% for the high price tier (53.7% since 2011).

The good news for all existing homeowners is that home price growth accelerated in each of the four pricing tiers in 2020. And if you’re looking for the biggest percentage gains, the entry-level homes are often the best bet, especially with the millions of first-time homebuyers entering the market.

In terms of current value of housing stock, 39% of metropolitan areas were overvalued, 24% were undervalued, and 37% were at current market value.

Again, you need to carefully consider your own local housing market as opposed to solely following the national numbers. For example, the already overvalued Las Vegas home prices are forecasted to plummet by 20.1% over the next year.

You can thank COVID-19 for that fact, as it is obliterating the state’s economies that are mostly rely on tourism. Conversely, home prices in San Diego, which are presently considered “normal,” are only expected to dip 1.3% over the next 12 months.

In other words, it’s critical to know your housing market. Let mortgage professionals MortgageDepot find the best, lowest mortgage rates available to you today!

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