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Interest Rate Increases and the Impact on Home Prices

With another rate increase last week, this week we are going to look at the correlation between interest rate changes and the corresponding impact that it had on home prices. To do this I have pulled the monthly average home prices for the entire market and compared any ups and downs and what interest rates are doing at that time. Keep in mind the average home prices we are looking at is month over month and the market can fluctuate seasonally, the interest rates are not the only thing impacting home prices, but for the purpose of this email we are going to seethe impact.

Real estate is often a long term play, anyone trying to profit in real estate normally is accounting for the gain over the long term rather than the short term. The gains in the last couple years have been unheard of in such a short period of time and due to a mix of inflation, low supply and high demand. When looking at the overall gains in the market we are going to rewind to March 2020 where the average home price sale was $570,000. In March of 2021 the average home price rose to $731,731 and then to $938,465 in 2022 before dropping to $816,475 this past March.

You might look at the gains and losses and feel like you have missed out, but that really depends. Everyone needs a home. When looking at the market any gain or loss in the market, if you are planning on selling and buying in the same market, is somewhat irrelevant. If you are selling a more expensive home and planning to buy a less expensive home you will stand to lose more, but it really depends on what you’re selling and buying, and what the demand is for it, that will dictate the price. I like to look at it from the perspective that since May 2020 to May2023 the average home prices have increased $314,660. That is despite all the month over month changes and comparing the same month of the year to avoid seasonality changes.

When looking at the month over month changes, this might cause a bit more anxiety for home owners and buyers. Starting in January 2022 to February 2022, right before the interest rates started to increase, there was an increase in average home prices, with a substantial price change of $104,320.However, the prime rate remained constant at 2.45% during this period. In March 2022, we observed a small decrease in average home prices, amounting to -$1,922. This coincided with a 0.25% increase in the prime rate to 2.7%. By April 2022, average home prices experienced a more significant decline, totalling -$22,221, aligning with a further increase in the prime rate to 3.2%. The downward trend in average home prices continued in May 2022, with a significant decrease of -$62,579. Despite this, the prime rate remained unchanged at 3.2%. However, in June 2022, we observed a reversal in this trend, with average home prices increasing by $3,982. This period also saw a rise of 0.5% in the prime rate to 3.7%. Moving forward to July 2022, average home prices experienced a marginal increase of $558, corresponding with a further rise of 1% in the prime rate to 4.7%. However, in August 2022, there was a decrease in average home prices of -$9,732, while the prime rate remained unchanged at 4.7%. The subsequent period from September 2022 to February 2023 witnessed an overall positive trend in average home prices. In September 2022, there was a substantial increase of $109,708 in average home prices, even with a rise in the prime rate of 0.75% on September 7th, 2022 to 5.45%. However, October 2022 saw a sharp decline of the entire gain and then sum-$123,803 in average home prices, despite the prime rate remaining steady at5.45%. The following months demonstrated a mix of positive and negative changes in average home prices, despite a gradual increase in the prime rate. November 2022 experienced a modest increase of $10,127, with the prime rate reaching 5.95%. In contrast, December 2022 saw a decline of -$17,694in average home prices, while the prime rate rose to 6.45%. As we entered 2023, average home prices continued to decline, with January 2023 showing a decrease of -$33,072. However, in February and March 2023, average home prices recovered slightly, with increases of$14,274 and $8,462, respectively. Throughout this period, the prime rate remained unchanged at 6.7%. When interest rates increase, we tend to see a mixed pattern of both positive and negative changes in average home prices. However, it is important to note that multiple factors influence the real estate market, and interest rates are just one piece of the puzzle. We are also looking at the month over month changes, which is subject to a number of different variables like seasonality and amount of inventory. Despite the increases of interest rates of 4.5% since March 2022, if you are looking at the average home prices and the change in home prices since January 2022 the average sale price has increased by $38,861, from $836,067 to $874,928 in May, but dropped from February 2022’s high of $940,387 which was the last month without a rate increase. While the data for the most recent interest rate change in June 2023 is not available, it will be interesting to monitor how this change impacts average home prices in the coming months. Real estate markets are complex and influenced by various factors, so make sure you are asking questions, feel free to reach out. While we anticipate the stats for June once the dust settles, and all the solds and activities are recorded, preliminary data suggests a dynamic market, but it is a bit dependent on what price range you’re in. Mark and Maddie


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