We recently released a report comparing a number of different real estate data points between 2023 and previous years. [Click here to download full report.] One of the overarching themes of last year was the rising challenge of home affordability. It is getting harder and harder for people in America (and in our markets specifically) to afford a home. Home prices are high, and so are mortgage rates. Housing supply is limited, meaning more buyers competing for the same available properties. There are some positive signs and expectations heading into 2024. However, it helps to understand what we experienced last year—and how we got to this point.
Home Price Appreciation Trends
Home prices have appreciated faster than historical averages over the past few years. Meanwhile, wages have not increased at a comparable rate. We are also dealing with inflation, meaning the cost of living has gone up significantly. The cost of building new homes has increased dramatically, which has slowed down new construction in many burgeoning markets. Home prices tend to be more resilient in areas where new construction is limited. Inventory is more concentrated to the resale of existing homes and this requires sellers to sell.
The Challenges of Home Affordability
There are plenty of buyers still out there looking for a good home. Unfortunately, they are feeling the squeeze and this has slowed down activity in the real estate market. Many sellers are content to stay where they are. They are in no rush to sell and become buyers in a difficult market themselves.
According to Redfin data, home affordability reached an all-time low in 2023. They measured the percentage of median income an average household would need to spend on monthly housing costs on a median-priced home (mortgage, insurance, property taxes, utilities, upkeep, etc.). Their estimation shows a 2023 home buyer would be spending as much as 41.4% of their income on buying and owning a house. This is up almost 3% from 2022 and over 10% from 2021. This number is by far the highest amount on record. By comparison, the same percentage for a home buyer in 2012 was 21.1%.
One thing to note is that the home price appreciation rate did slow down in 2023 as buyer demand dwindled. Price growth is slowing to single digits in many areas, with the original asking price and final settled price becoming closer. Home prices still went up on average, but not at the same appreciation rates as previous years. The silver lining for home buyers in 2024 is that home price appreciation is expected to continue slowing down while mortgage rates might also ease. Prices may even decrease in some markets. We’ve been seeing more and more home sellers making price reductions, especially properties that needed some work.
Buyers are looking for quality and overall value above all else. Fixer-upper properties may be tougher to sell without bringing the price down significantly. This is because home affordability is still a major challenge. It costs more than ever to buy a house. Buyers aren’t going to have the money to fix up a home—at least not right away. They will be prioritizing houses that are move-in ready. Sellers need to prepare their properties better with repairs, upgrades and professional home staging/marketing if they want to attract qualified buyers in today’s market. Gone are the days of putting any property on the market and watching it get multiple offers overnight. No seller should be expecting crazy offers way above asking price anymore.
All Real Estate is Local!
One of the most important things to remember is that all real estate is local. We can study national trends and compare them with what’s happening in our local markets. Our report looks at localized housing stats in Chester County, Delaware County, Montgomery County, Philadelphia County and New Castle County specifically. In many ways, the data reflects what is happening nationwide. Yet, what’s most important to our home buyers and sellers is understanding what’s taking place locally and what they need to do in order to be properly prepared for a move.
We will continue this discussion in our next blog article, so please stay tune. In the meantime, feel free to download our full report here.
For all your real estate needs in Southeastern Pennsylvania and Northern Delaware, contact The Cyr Team today.