Blessings, curses, enigmas, paradoxes, etc… The state of home price appreciation in the U.S. is all of the above. The positive case for home prices is as simple as glancing at the most recent update on the two major home price indices (HPIs) released this week by FHFA and Case Shiller. Both agree that homes continue to appreciate at a historically elevated pace. Note the extreme difference between the price correction seen in early 2023 and the outright price depression associated with the Great Recession more than a decade earlier. It goes without saying that if appreciation is going to decline (or even briefly turn negative, in the case of Case Shiller), this is what we’d want things to look like if we’re interested in maintaining healthy levels of demand among buyers. The counterpoint is that 4-7% annual growth in home prices significantly outpaces growth in income. In other words, it’s not sustainable. Combine that with mortgage rates over 7% and it’s an easy recipe for extremely poor affordability. What can help affordability? Here’s a list:
Home prices could fall
Rates could fall
Homes could get smaller (this would effectively make prices lower, but not in a way that would show up in the home price indices due to what’s known as “repeat sales” methodology)
Builders could build more homes/apartments/etc, and at a faster pace
Multiple roommates/families under one roof sharing expenses
The balance of other expenses could go lower MND NewsWireRead More