“If the housing market is so strong, why are we seeing so many price reductions?” That was a question I received last week.
And the answer is… we always see price reductions.
As per usual, it was Barry Habib to the rescue this morning. So, full attribution to Barry Habib, MBS Highway, and Altos Research (the firm that provided the chart Barry shared and that is copied below).
Habib points out that in the first half of 2022, home values increased by 9% when there were no price reductions and that they fell 3% after price reductions surged – but that was an anomaly.
In 2021, home values surged a full 19% despite a large increase in price reductions. We also saw home values increase in 2018 and 2019, despite significant increases in price reductions.
2020 was the only year we did not see a large increase in price reductions, and home values increased by about 10%.
Habib’s primary points were: (1) price reductions are common in most years, and they rarely correspond to a future drop in home values; and (2) demand still exceeds supply, and that dynamic will continue to keep home values propped up.
And, as I remind readers often, if rates drop significantly, many more buyers will return to the market only exacerbating that demand/supply imbalance.
NOTE: Chart is courtesy of MBS Highway and Altos Research
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