In 2022, home prices reached an all-time high, with the median price increasing by 50% from January 2020. High mortgage rates have significantly slowed the housing market, with Redfin predicting that the median U.S. home price will fall by nearly 4% in 2023, marking the first year-over-year decline in a decade. Home sales will also fall, reaching their lowest level since 2011, a 30% drop from 2021. While many areas are already seeing price decreases, others are expected to be even more expensive this year.
Locations where prices will fall the most
In the aftermath of COVID-19, pandemic migration hotspots such as coastal cities and those in the Sun Belt saw the greatest increases in the housing market frenzy. From the first quarter of 2021 to the first quarter of 2022, home prices in Malibu, California increased by 82%. The East Coast saw record gains as well, with the average home price in New York’s Hamptons increasing by 25% and the number of available homes falling to a record low.
Home prices rose the most in cities like Austin, Boise, and Phoenix, which were popular vacation spots during the pandemic’s early stages. Prices in these areas are expected to be the most volatile because there is a lot more room for price drops compared to areas that did not see as much growth.
Prices are expected to rise.
Climate-risky areas, such as the hills of California and oceanfront property in Florida, will see prices rise further, owing to high insurance costs. Disaster insurance premium rates, according to Redfin data, will continue to rise, offsetting any price declines in these areas. Insurance premiums in Florida increased by 33% last year and are expected to rise even further as a result of Hurricane Ian, the deadliest hurricane to hit the state since 1935. The storm was also the most expensive in Florida history, causing $113 billion in damage.
In California, many insurers have stopped issuing policies on high-risk homes. This means that the only insurance companies available to homeowners in these areas are two to three times more expensive. Even FEMA flood insurance rates have risen. Due to the requirement of disaster insurance for a mortgage in these high-risk areas, the majority of those who can afford these types of homes are wealthy all-cash buyers.
Many people’s first home is the most expensive purchase they will ever make. Before you buy a home, make sure you consider the total costs of homeownership, including insurance, property taxes, and maintenance fees. Any decreases in home prices seen in some areas will be offset by the dramatic increase in insurance premiums. Buying a home should be based on your personal financial situation, and it is critical to budget for all potential costs.
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