July Housing Data Reveals Upward Trajectory for Home Prices

The July housing market indexes from FHFA and Case-Shiller just released, offering insight into where home prices are headed in the final quarter of 2023. In our latest episode, we analyze the key data points to determine how strong demand still is and what may be in store for buyers in 2024.

FHFA Index Shows Financed Homes Gaining 5-8%

The FHFA Index tracks home prices for financed transactions, primarily mortgages backed by Fannie Mae and Freddie Mac. It showed annual gains of 5-8% for July across different regions.

This upward momentum comes despite mortgage rates hitting their highest levels in over 20 years, reducing buyer purchasing power. The fact that financed deals are still appreciating rapidly suggests demand remains red-hot.

Interestingly, cash buyers are not commanding significantly lower prices than financed buyers right now. Seller expectations seem to be detached from economic conditions, as many homeowners don't need to sell and are holding out for top dollar offers.

Case-Shiller Index Turns Positive

The S&P Case-Shiller Index had posted 3 consecutive months of minor declines through June. But the July index actually showed a turn upwards, evidencing the strength of the housing market now.

As this index tracks all transactions, including cash deals, it tells us the housing frenzy is not limited to those with mortgage financing. Cash buyers are facing bidding wars and inflated prices just like financed buyers.

It appears sellers are firmly in the driver's seat, able to wait for offers that meet their price expectations. Homes are routinely receiving 3-4 offers on average nationwide.

The Psychology of Confident Sellers

Today's sellers don't seem concerned about rising mortgage rates or recession fears. The pandemic sparked renewed appreciation for home ownership, and sellers are intent on maximizing profits.

With rents also spiking, sellers don't feel pressure to give up their locked-in low mortgage rates. They appear confident that buyer demand will remain strong irrespective of economic uncertainty.

Many also expect home values will rise substantially again once rates decline, so are factoring future appreciation into their pricing strategy. This seller psychology is preventing home prices from softening.

Implications for Conforming Loan Limits

The FHFA Index has direct implications for conforming loan limits on mortgages backed by Fannie Mae and Freddie Mac. The annual increases this index shows will likely raise loan limits for 2024.

If appreciation hits 5-8% again from August to October, we could see conforming limits rise from $726,200 currently to as high as $775,000 next year. Higher limits will likely fuel the home appreciation even further, enabling more buyers to obtain prime financing.

The Bottom Line

The key takeaway from the July housing data is that home prices are defying gravity despite economic headwinds. Appreciation is exceeding expectations, fueled by intense demand and undeterred sellers.

What does this mean for buyers and sellers? Here are the key implications to guide your decisions:

For Buyers:

• Don't expect home prices to correct downwards substantially. Bidding wars will persist.
• Rising conforming loan limits may help offset affordability challenges next year.
• Act now before prices and competition intensify further. Don't try to time the market.
• Bid competitively and be ready to negotiate rather than lowball. Sellers have leverage.

For Sellers:

• List prices aggressively to capitalize on buyer competition and demand.
• Don't settle for lowball offers. Leverage competitive bids to maximize sale prices.
• Consider waiting to list if not pressed to sell quickly, as prices should continue rising.
• Weigh future appreciation if debating selling now versus in 2024. Price gains are likely ahead.

The housing market is defying the odds and showing its strength. Savvy buyers and sellers who understand where home values are headed will have the upper hand. Adapt your strategy to today's environment and don't underestimate the power of high demand versus low supply.