Are Home Prices Headed Even Higher?
The U.S. could be following Canada's housing market path
About a year ago on July 6, 2022 I wrote piece titled Is Housing Next to Fall? Well was I ever wrong. Not only has the housing market held up, home prices are actually on the rise again.
On June 12, Zillow Home Values and Sales Forecast made another upward revision to its forecasted home value growth. It moved to a projection of 5.8% home value growth from May 2023 to May 2024. That’s an upward revision from last month’s report which called for a 3.9% increase from where the year began.
Here is where Zillow expects regional home prices to head moving forward. Their model predicts rising prices in 390 of 400 largest U.S. housing markets. That’s a lot of green!
What isn’t realized is that a majority of the country is already back to their pandemic home price peaks. In fact, look at all the counties in the country that have just made new all-time home price highs.
The part that I didn’t realize was that this rise in house prices had began prior to the pandemic. The pandemic and the work from home side of the story has only accelerated growth.
But how can this be? As I write this, the 30-year fixed mortgage sits at 6.97%. On December 30, 2021 that rate was 3.11%. To think of all the people who have locked in 30-year mortgage rates near those levels. In fact, it’s a large majority of active mortgages as the chart below shows.
Roughly 15 million people have a home with an interest rate under 3%. Looking back this will be the financial move of a lifetime for many people. What makes them move, sell their home and give up that mortgage rate?
Imagine how much higher home prices would be if interest rates were still that low?
This rise in interest rates has led to the worst home affordability in history. Ben Carlson wrote a post called The Worst Housing Affordability Ever? In it he shared the following chart from Redfin.
As rates rose everyone knew that affordability would jump. But it hasn’t crashed the housing market. To my and I think everyone else’s surprise is that the supply and demand imbalance has remained. People still want homes and there just isn’t the supply to satisfy that demand.
When we look at demand it took a dip at the end of 2022 but is now rising back up to where buyers far outpace sellers.
It’s good to have demand but the demand comes when there is a shortage of supply.
We’ve all heard from, know of someone or it may even be you who has fought the battle of trying to find a house. Homes that do make it to market still have lines around the block, receive multiple offers and the offers are for tens of thousands over the listing price. There are people who want a home but for many it’s not affordable. Others literally may have no options for inventory anywhere nearby.
Some decided to wait in 2021, 2022 and now in 2023. Waiting itself is tough but seeing prices continue to rise is gut wrenching.
People keep saying (and hoping). “Rates have to come down.” But what if 6-7% mortgage rates or even higher are the new normal.
I’ve heard, “Prices still have to come down.” But what if they continue to rise further?
I continue to hear, “The housing market has to crash at some point soon.” What if it doesn’t?
This leads me to the question, is the U.S. following Canada’s housing market?
The known thing about Canada is that their housing is and has been much more expensive than the United States for some time. The median home price is about 50% higher in Canada than the U.S. Low housing inventory has caused record demand. There is not enough new homes built or being built to fill demand. Prices have been high and still remain high.
Sounds like the current state of this U.S. housing market doesn't it?
In looking at this chart we think the U.S. looks normal and that Canada has the bubble. Or could the U.S. still be underpriced?
Remember Canada has lower wages than the United States. The U.S. has stronger employment. As incomes rise, housing prices rise.
To read more on Canada real estate I suggest
, who writes . Two lines that stick out from a recent post, An increase in new listings has finally arrived.This is a bubble-like appreciation and a confirmation to insights about FOMO (Fear of Missing Out) shared by real estate industry experts last month.
the Toronto Metro real estate market becomes the most unaffordable since at least the 1980s.
The overarching theme to both the U.S. and Canada housing markets is one word, demand. Demand is what’s driving the entire housing market surge in both the U.S. and Canada. Until enough homes come available or are built to satisfy that demand, prices will continue to remain high and likely rise even further. Simply put, until the demand is met, home prices will remain on a climb higher.
After seeing what things are like with our neighbors to the north, home values in the U.S. don’t look overvalued. One could argue that U.S. homes are still a bargain.
The Coffee Table ☕
This was an eye opeing chart. Ian Bremmer summarized this chart best, “Not many charts define the future, but here’s one that’s close.”
If you’re looking for a good father’s day gift for your Dad and he enjoys a big ice cube in his drink, these are the best one’s I’ve found. Bloxx King Cube Ice Tray These molds make 6 cubes that are 2”. The cubes are easy to take out and come out perfectly shaped. If you want more than one they also stack nicely. I’ve tried a number of different ones and have donated or given all the others away as these are the only ones I have in my freezer now.
With Father’s Day this week I wanted to leave everyone with this video that my friend Tim sent me. To my Dad and all the Dads out there, Happy Father’s Day.
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