Home Prices Fell in November but Were Still Up 8.2% Year Over Year

Buyers shouldn't get too excited about lower home prices just yet.

If you've been trying to buy a home for quite some time now, you may be wondering when housing prices will finally start to come down. The answer? It could be a while.

The Federal Housing Finance Agency just released its latest House Price Index with November 2022 data. It found that this past November, home prices fell 0.1% on a national level compared to the month of October.

At first glance, seeing a drop in home prices might give you something to be happy about as a buyer. But it's important to keep this decline in perspective. For one thing, we're talking about 0.1%, which is not a huge decline. Also, while U.S. home prices may have dropped between October and November, on a year-over-year basis, they were still up 8.2%.

All told, anyone who struggled to buy a home in 2022 might continue to struggle in 2023. And higher home prices aren't the only reason for that.

Mortgage rates are a factor, too

Elevated home prices mean having to bring more money to the table for a down payment to sign a mortgage. That alone could be a challenge, especially at a time when inflation is still rearing its ugly head.

But compounding the affordability issue for buyers is higher mortgage rates. Last year, borrowing rates rose across a range of consumer categories on the heels of rate hikes by the Federal Reserve. Even before the Fed started getting more aggressive with its rate hike policies, mortgage rates had already begun to climb.

So all told, anyone looking to buy a home in 2023 -- or at least at the start of the year -- is looking at not only paying more in terms of a purchase price, but also getting stuck with a higher interest rate on a mortgage. And so it's easy to see why many buyers might have to put their house hunting on hold this year.

Low inventory is still an issue

Part of the reason home prices are up is that there's not enough inventory on the market to meet buyer demand. But will that change in 2023? It's hard to say.

In 2020 and 2021, inventory was low, but much of that trend could be attributed to the pandemic. In 2022, inventory didn't exactly explode, but inflation and economic concerns may have fueled that standstill.

At this point, we're still not out of the woods with regard to a recession. And so it's easy to see why sellers aren't rushing to get their homes listed -- they don't want to deal with financial upheaval at a time when the economy has the potential to take a nosedive.

All told, it's fair to say 2023 might end up being a difficult year for home buyers, just as 2022 was. This doesn't mean you have to give up on buying a home. But you should be aware of the circumstances you're looking at and the challenges you might face.