Home Prices Decline as Rising Mortgage Rates Pressure Demand

Chart of the Month
Written By Jonathan M. Elliott, CPWA®, CRPC®, CDFA®, ChSNC®, CPFA™, RMA®
House during winter season

Photo Credit: Tracy Adams, Unsplash

The U.S. housing market is experiencing a significant slowdown after two years of rapid growth. The chart below shows that home prices in the United States fell -3.3% from June to September this year, the most significant three-month drop since the 2008 financial crisis. This recent downward trend is a sharp reversal from 2021 and early 2022 when low-interest rates boosted homebuyer demand and caused home prices to climb nearly 20% year-over-year.

Change in U.S. Home Prices (2000-Present)

Change in U.S. Home Prices

Already, high home prices make housing less affordable. As buyers and sellers get used to the new reality of higher interest rates in the coming months, home prices are expected to fall even more. The main cause of this decline is the Federal Reserve raising interest rates at the fastest pace since the 1980s, pushing the average 30-year fixed rate mortgage back to 2007 levels. Higher mortgage rates have made monthly payments significantly more expensive and homeownership more difficult for many potential homebuyers.

The Federal Reserve's tightening monetary policy has negatively impacted the housing market this year. New and existing home sales are declining, mortgage applications are falling, and home builder sentiment has weakened every month during 2022. This housing weakness could carry forward into 2023 as the effects of higher interest rates impact the U.S. economy. The housing market is a significant part of the U.S. economy, and its sizeable secondary effect on consumption could make it a potential hindrance to economic growth. With Federal Reserve tightening expected to end in early 2023, the housing market may take some time to recover.

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Jonathan M. Elliott, CPWA®, CRPC®, CDFA®, ChSNC®, CPFA™, RMA®

I am currently the Managing Partner for our independent investment advisory firm, Optima Capital Management. Together with my business partners, Todd Bendell CFP® and Clinton Steinhoff, we founded Optima Capital in 2019 as a forward-thinking wealth management firm that serves as an investment fiduciary and family office for high-net-worth individuals and families. In addition to being the Chief Compliance Officer, my role at Optima Capital is portfolio management. I have over 18 years of experience in managing investment strategies and portfolios. I specialize in using fundamental and technical analysis to build custom portfolios that utilize individual equities, bonds, and exchange-traded funds (ETFs). I began my financial services career with Merrill Lynch in 2003. At Merrill, I served in the leadership roles of Market Sales Manager and Senior Resident Director for the Scottsdale West Valley Market in Arizona. On Wall Street Magazine recognized me as one of the Top 100 Branch Managers in 2017. I am originally from Saginaw, Michigan, and a marketing graduate from the W.P. Carey School of Business at Arizona State University. I am a Certified Private Wealth Advisor® professional. The CPWA® certification program is an advanced credential created specifically for wealth managers who work with high net worth clients, focusing on the life cycle of wealth: accumulation, preservation, and distribution. In addition, I hold the following designations - Chartered Retirement Planning Counselor (CRPC®), Certified Divorce Financial Analyst (CDFA®), Certified Plan Fiduciary Advisor (CPFA), and Retirement Management Advisor (RMA®). In the community, I am a member of the Central Arizona Estate Planning Council (CAEPC) and serve as an alumni advisor and mentor to student organizations at Arizona State University. My interests include traveling, outdoors, fitness, leadership, entrepreneurship, minimalism, and computer science.

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