Home price growth surges at fastest pace since late 2022

Home prices sustained their upward trajectory to end 2023, even seeing the largest pace of growth in over a year, according to Redfin.

The median sales price of homes in the U.S. accelerated 4% on a year-over-year basis to $403,714 in December, the online real estate broker said. The annual surge was the greatest since October 2022, surpassing November's 3.7% rise. 

A combination of factors continue to propel price growth, including elevated demand arriving after a swift pullback in interest rates late last year. But the leading reason behind current price levels remains scarce supply, Redfin said.

Although lower rates brought sellers back into the market, increasing availability, new listings were not enough to fully sate buyer demand or prevent competition. The number of new listings climbed up 2.7% annually — the most in over two years — and a seasonally adjusted 0.1% from November.

"Bidding wars are happening again, but they're much more reasonable than they were during the pandemic home buying frenzy," said Abby Alwan, a Redfin agent in Austin, Texas, in a press release. "Houses are getting between one and five competing bids, and instead of offering $100,000 or $200,000 over the asking price, competitive buyers are offering 3% to 5% over."

On a monthly basis, though, home prices went in reverse to line up with typical seasonal patterns based on information from Redfin's platform. The median price fell between November and December by 1.1% from $408,732. 

Redfin's data echoes similar late-2023 findings by Fannie Mae, which measures property values quarterly in its home price index. Between the fourth quarters of 2022 and 2023, the index surged 7.1%, researchers at the government-sponsored enterprise reported this week. A spike in interest rates in September and October, when they briefly flirted with 8%, held back the rate of growth from going higher, said Fannie Mae Chief Economist Doug Duncan.

Compared to the previous three-month period, the fourth quarter managed to squeeze out a 1.7% seasonally adjusted uptick in prices. On an unadjusted basis, home values rose 0.4%, with both seasonal patterns and the rise in interest rates putting the brakes on growth. In contrast, between second and third quarters, Fannie Mae's index had climbed a seasonally adjusted 2.1%. 

Still, growth in property values for the full year managed to surpass predictions put forth in late 2022 by many economists. Some expected prices to experience negative growth at some point last year, while a few forecasts, including Redfin's, also said they would finish 2023 at a lower mark than where they were 12 months earlier. 

"For the year, housing demand held up surprisingly well, in large part due to ongoing demographic support — millennials continue to drive demand in many areas — and generally strong household finances," Duncan said.

Redfin also attributed declining mortgage rates for a December upturn in pending sales, which jumped 4.1% month over month to its highest level in over a year. Compared to one year earlier, pending sales climbed up 5.9%.

But the real estate platform also cautioned this week that recent severe weather is expected to slow the sales momentum in January. Any winter pullback is likely to be temporary, though.

"As long as rates don't shoot up, we expect the market to pick up as the spring season approaches," said Redfin economic research lead Chen Zhao.

Northeastern markets saw the most competition among U.S. cities, with 65.3% of homes sold in Rochester, New York, going for above initial list price — the highest share in the country. Finishing behind Rochester was Newark, New Jersey, at 61.3%, and Buffalo, New York, with 61.2%.

Rochester also saw the greatest portion of homes go under contract within two weeks at 61% to, again, lead the nation. In second place was Grand Rapids, Michigan, at 48.5%, followed by Cincinnati at 46.6%. 

The strengthening of housing markets in the Northeast and Midwest correspond to other recent research, which sees values going up rapidly in several metropolitan areas in those regions this year. Leading the list of hottest markets for 2024 are Buffalo and Cincinnati, according to recent rankings from Redfin's real estate counterpart and rival, Zillow.