Home prices in the U.S. are expected to increase 3% by May 2025, which pales in comparison to the nearly 5% year-over-year market growth between May 2023 and May 2024.
CoreLogic estimates that the slowdown can be attributed to both the surplus of houses on the market, and 7% interest rate for 30-year fixed rate mortgages, which acts as a barrier to homeownership for many Americans.
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Though housing price growth is slowing, May 2024 marks the 148th month of consecutive price gain growth.
“While national annual home price growth continues to slow as anticipated, cooling appreciation over the past months is now observed in more markets, as the surge in mortgage rates this spring caused both slowing homebuyer demand and prices,” chief economist Selma Hepp at CoreLogic noted. “However, persistently stronger home price gains this spring continue in markets where inventory is well below pre-pandemic levels, such as those in the Northeast.”
“Also, markets that are relatively more affordable, such as those in the Midwest, have seen healthy price growth this spring,” Hepp added. “On the other hand, markets with notable inventory increases, including those in Florida and Texas, continue to see annual deceleration that is pulling prices below numbers recorded last year.”
Prospective homebuyers may need to rethink their approach in this market, steering clear of housing markets in the northeast. New Hampshire saw year-over-year price growth of 12%, nearly triple the national average of 4.9%. New Jersey and Rhode Island markets also show no signs of slowing, with a notable housing price growth of 9.8%.
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Lack of affordability is the top barrier to home ownership
Seventy-eight percent of Americans that don’t own a home cite mounting homeownership costs as the top hurdle preventing them from entering the housing market. More specifically, not enough income (56%), high housing prices (47%), and not being able to cover a down payment (42%) were the top factors affecting housing affordability. High mortgage rates, low credit scores, and personal debt were also noted as constraints.
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The average median-priced house in the U.S. costs $402,343, which would require an annual salary of more than $110,000 in 2024, well over the national average. In the top U.S. metro areas, renting is actually more affordable and cost-effective than buying a home — homeownership costs 37% more than renting on a monthly basis.
Mounting lack of affordability and steep interest rates are proving to be the biggest hurdles for prospective homeowners.
Prospective homebuyers must evaluate if renting is a more viable short-term approach, and wait until the housing market is more friendly to first-time homeowners.
A competitive housing market may lead to homeowner regrets
Although 78% of Americans view owning a home as a crucial element of the American dream, many homeowners have regrets about their purchase. Forty percent of those with regrets cited expensive hidden costs and maintenance fees as their top regret concern, according to a May 2024 Bankrate study.
Bankrate’s senior economic analyst, Mark Hamrick, noted that homeowners should make sure they have a healthy savings nest egg that would cover unforeseen expenses before taking the plunge to buy a home.
For those still interested in purchasing a home, many state housing agencies offer grants and loan support for down payments and closing costs. Low down payment loans from lenders and the Federal Housing Administration are also available to eligible homebuyers.
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