Home price growth keeps slowing, but new owners still pay more

Although several housing groups are reporting home-price growth flattening or falling this winter, new research also suggests that the drop-offs may be approaching bottom, leaving lingering affordability issues unresolved.

Median housing costs in the fourth quarter of 2022 climbed up by 4% on an annual basis, with 90% of metropolitan areas seeing home-price growth, according to the National Association of Realtors. The median amount of a home purchase came out to $378,700, almost 5% lower than $398,500 in the third quarter when prices were up 8.6% from the same period the previous year. 

"A slowdown in home prices is underway and welcomed, particularly as the typical home price has risen 42% in the past three years," NAR Chief Economist Lawrence Yun said in a press release. By comparison, wages and inflation have only gone up by 15% and 14% over that same period.

But Yun also pointed to ongoing supply pressures that would put a floor to how much further prices might tumble.

"Even with a projected reduction in home sales this year, prices are expected to remain stable in the vast majority of the markets due to extremely limited supply," Yun said. "Moreover, there are signs that buyers are returning as mortgage rates decline, even with inventory levels near historic lows."

Those trends do little to remove remaining obstacles in front of some hopeful homeowners. Despite the quarterly median price decline, affordable purchases became even more difficult to find, particularly for first-time buyers, NAR found.

Households typically spent 26.2% of income on their mortgage payments, crossing above the 25% threshold that NAR considers unaffordable. The share was up from 25% in the third quarter and 17.5% in the final three months of 2021. 

That number was even higher for first-time buyers, who spent 39.5% of income on mortgage payments. The share increased from 37.8% in the third quarter. 

Monthly mortgage payments for an existing single-family home purchase with 20% down payment surged 58% year over year to $1,969 in the fourth quarter from $720. Compared to the previous quarter, the average increased 7% from $1,838.

A family would also need income of $100,000 or more to afford a 10% down-payment mortgage in 71 of the 186 markets tracked by NAR, up from 59 in the prior quarter. 

Median prices rose in all regions of the country compared to late 2021, led by the Northeast with a 5.3% surge. The South followed at 4.9% and the Midwest at 4%. The Western U.S. posted the smallest home price growth at 2.6%. Approximately 18% of cities reported double-digit annual price growth, with several located in Florida and the Carolinas.

Meanwhile, half of the top 10 priciest markets were found in California, led by San Jose, where the median price came in at $1.58 million, followed by San Francisco at $1.23 million and Anaheim at $1.13. But those three California metro areas were also among the 20 where housing costs declined in the fourth quarter, falling annually by 5.8%, 6.1% and 1.6%, respectively. Further decreases may be ahead for them. 

"A few markets may see double-digit price drops, especially some of the more expensive parts of the country which have also seen weaker employment and higher instances of residents moving to other areas," Yun said.