042624 Real Estate Directory

SPIKING HOME PRICES WORSE THAN INFLATION

Franklin Schneider WEALTH OF GEEKS

A new study from Clever Real Estate shows home prices have risen faster than inflation for the past six decades, locking many younger Americans out of homeownership.

Millennials have taken a lot of criticism for financially lagging behind previous generations, but it may not be their fault. After adjusting for income, homes are almost twice as expensive for millennials today than they were for baby boomers in their 30s, according to a 2024 analysis from Clever Real Estate, an agent-matching company.

In 1985, the median new home cost $83,200, about 3.5 times the median household income of $23,620. By 2022, the latest year with available income data, the median new home price climbed to $468,000 — a staggering 6.3 times the median household income of $74,580.

To put it another way, for homes today to be as affordable as they were in 1985, median household incomes would have to rise to $134,000 a year, nearly double their current level.

Clever Real Estate notes that succeeding generations may have it even worse if drastic changes aren’t implemented. At the present pace, the median home in 2030 will cost 6.9 times the median household income. By 2050, the median home will cost an unsustainable 8.4 times the median household income if this trend’s trajectory continues. An accelerating problem

state, Oregon and Rhode Island, which all saw home price increases of over 210 percent.

Buyers in Louisiana saw the smallest increase, with an 86 percent increase since 2000, followed by Illinois, Michigan and Mississippi. They’re the only states where prices haven’t at least doubled.

In 14 of the 50 largest U.S. metro areas, average home prices have tripled, and in some areas, even more. In Miami, Riverside, Los Angeles, San Diego and Tampa, home prices increased by 250 percent or more.

Only four major U.S. cities have seen increases of less than 90 percent since 2000: Cleveland, New Orleans, Detroit and Chicago.

While there are some exceptions, trends indicate that homes in coastal states are rising faster than homes in middle America. If affordability continues to plummet, the U.S. may see a profound population reshuffle as people move across the country in search of market affordability.

This curve has steepened since 2013. In the last 10 years, inflation increased 31 percent, and home prices spiked 63 percent, catapulting the median home price to $431,000 from $264,800.

While policymakers allowed small measures — homebuyer rebates and the mortgage interest tax deduction — homebuying

Home prices have long outpaced inflation, rising 2.4 times higher than in the 1960s. But the problem worsened acutely in the past decade. If home prices were level with inflation, today’s median new home would run Americans $177,500. But by the end of 2023, Federal Reserve data showed a median cost of $431,000.

U.S. long-term rate increases for the fourth straight week

Alex Veiga AP BUSINESS WRITER

LOS ANGELES — The average long-term U.S. mortgage rate climbed this week to its highest level since late November, another setback for home shoppers in what’s traditionally the housing market’s busiest time of the year.

The average rate on a 30-year mortgage rose to 7.17 percent from 7.1 percent last week, mortgage buyer Freddie Mac said Thursday. A year ago, the rate averaged 6.43 percent.

Borrowing costs on 15-year fixed-rate mortgages, popular with homeowners refinancing their home loans, also rose this week, lifting the average rate to 6.44 percent from 6.39 percent last week. A year ago, it averaged 5.71 percent, Freddie Mac said.

When mortgage rates rise, they can add hundreds of dollars a month in costs for borrowers, limiting how much they can afford at a time when the U.S. housing market remains constrained by relatively few homes for sale and rising home prices.

The average rate on a 30-year mortgage has now increased four weeks in a row. The latest uptick brings it to its highest level since November 30, when it was 7.22 percent.

After climbing to a 23-year high of 7.79 percent in October, the average rate on a 30-year mortgage had remained below 7 percent since early December amid expectations that inflation would ease enough this year for the Federal Reserve to begin cutting its short-term interest rate.

Mortgage rates are influenced by several factors, including how the bond market reacts to the Fed’s interest rate policy and the moves in the 10-year Treasury yield, which lenders use as a guide to pricing home loans. Home loan rates have been mostly drifting higher after a string of reports this year showing inflation remaining hotter than forecast, which has stoked doubts over how soon the Fed might decide to start lowering its benchmark interest rate.

Americans are up against systemic obstacles.

Demand is one of the largest obstacles for today’s U.S. homebuyers. Properties can take years to build, and in some regions, the low supply is a problem decades in the making.

“Unlike many things we buy, housing supply is often limited due to artificial factors like zoning or prohibitive land costs,” said Ezra Haber Glenn, lecturer for the Department of Urban Studies and Planning at the Massachusetts Institute of Technology. “Production can’t just ramp up. Even when production is possible, it’s not always quick enough to respond to demand.”

How rising home costs vary by location

Housing prices vary greatly by state. While the collective U.S. has noted a price increase of 160 percent since 2000, buyers in a few states witnessed increases of up to 300 percent or more.

At the state level, Hawai‘i leads the way with a price increase of 309 percent since 2000. Once listed around $203,000, the typical home now costs buyers $832,000 in 2024. California is a close second, with a 259 percent increase since 2000, followed by Idaho at 258 percent.

Other jurisdictions in the top 10 include Washington, D.C., Florida, Maine, Vermont, Washington

Good news for slower price growth

The Clever study expresses hope for would-be homeowners. Although home prices have surpassed inflation over the past several decades, 2023 was an outlier. Home prices rose 2.6 percent in 2023, while inflation grew 3.3 percent.

Policy moves drive this reversal. In early 2022, policymakers began raising interest rates to control inflation. Lenders quickly raised mortgage rates, and demand for homes plummeted. With fewer potential buyers, sellers cut prices, and home prices grew at a more controlled pace.

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