Tag Archives: housing values

Median home prices up 39% in four years

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How long can median home prices rapidly increase:

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The median U.S. home price is now $435,000, per NAR — up 39% since 2020 — while the average 30-year fixed mortgage rate has more than doubled to over 6% in that time

This is a quick jump in a short amount of time. Americans expect that housing values will go up over time – this is what can make it such a valuable investment – but can it keep going up this quickly?

Skepticism about this rise continuing at this rate could emphasize multiple unusual factors at play. A global pandemic. Interest rates shooting up. A quick turn toward working from home. A slow-down in housing construction, particularly for less expensive homes and starter homes. And housing prices do not always go up every year – they ten to over decades but not at every point.

On the other hand, why shouldn’t this rise continues? Where is a bunch of new housing going to come from? Will mortgage rates drop dramatically soon?

This statistic came from an article that primarily discusses how these rising prices mean many are priced out of the market. Those with resources already, particularly those with equity in a home, can better compete for the limited number of houses.

Whether values continue to increase or slow or even decline could go a long way toward affecting who can pursue the American Dream of homeownership.

American home sales still down

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Existing home sales in the United States are down to levels not seen for almost two decades:

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Sales of existing homes in the U.S. are on track for the worst year since 1995—for the second year in a row.  

Persistently high home prices and elevated mortgage rates are keeping potential home buyers on the sidelines. Sales of previously owned homes in the first nine months of the year were lower than the same period last year, the National Association of Realtors said Wednesday.

Existing-home sales in September fell 1% from the prior month to a seasonally adjusted annual rate of 3.84 million, NAR said, the lowest monthly rate since October 2010. Economists surveyed by The Wall Street Journal had estimated a monthly decrease of 0.5%. 

Three quick thoughts in response:

  1. The article hints at the consequences of this low level of sales. The mortgage industry is not originating as many mortgages. Potential homebuyers do not have as many options to choose from and the prices are higher. Not mentioned: does this mean this is helping to keep home values high? Or how much less economic activity does this all add up to?
  2. Why are home sales measured in absolute numbers? Compared to 1995, I assume there are more potential homes that could be sold in the United States because there are more homes. If we looked at the percentage of existing homes sold, wouldn’t the lower activity even be more clear?
  3. The expectation in this article and elsewhere seems to be that home sales should be at a higher level or should be growing in number. How cyclical are these numbers? How realistic is it to expect ongoing growth in this area? Looking at the chart in the article going back to 1981, it looks like there are 3 rises in growth followed by periods of lower numbers.

By itself, I am not sure what this particular figure compared to change over time means. What happens in the long run if the trend continues or it does not?

A possible shift in American policy: encouraging more housing overall, not just housing for those with limited resources

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One commentator notes that two possibilities for creating more housing in the United States could represent a shift in emphasis:

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How’s that going to happen? Tax incentives for builders, perhaps an expansion of the low-income housing tax credit, but mostly, a $40 billion fund that would “empower local governments to fund local solutions to build housing [and] support innovative methods of construction financing.”

It’s not clear exactly what an innovation fund entails. Maybe the closest antecedent is a new, $85 million HUD program called “Pathways to Removing Obstacles to Housing,” or PRO Housing, which this summer issued 17 grants of a few million dollars each. The projects that got money include buying land for affordable housing in Rhode Island, retooling a digital application process in New York City, and hiring staff to fast-track affordable housing proposals in Denver.

It was a super competitive process, with $13 in requests for every $1 in award. Which raises the question: What can an annual outlay of $100 million (the PRO budget for next year) do to solve a problem as big as a deficit of 3 million homes? “State and local governments look at each other all the time, so those little examples can bear a lot of fruit,” said Chris Herbert, director of the Joint Center for Housing Studies at Harvard and a fan of the program. “There’s not a lot of money out there, but these grants can become an example for other places.”

Note what those two programs share: A focus on more housing, period, even if it’s not necessarily restricted to low-income Americans. That’s a subtle, crucial shift in federal priorities that reflects the growing sense that Washington must intervene to create more housing at all price points, not just for the poorest households with the most urgent housing needs.

Focusing on more housing overall could have several benefits:

  1. It could be popular across residents who might be feeling the need for more and cheaper housing. Promoting such programs could garner more widespread public support.
  2. Could fit the theory that providing more housing overall will help moderate prices across the housing spectrum.
  3. As noted later in the article, the public may have a negative opinion of public housing based on prior efforts.

At the same time, it is not entirely clear that such an approach would lead to the outcomes politicians and residents want. Do people generally want more housing (or is this limited to particular places)? Will reduced prices in housing brought on by increasing the supply reach the people who need the most housing help? What large-scale programs can help increase housing and flexibility even as different jurisdictions and locales approach housing differently at the local level?

All of this might just need to be worked out. Perhaps the shift above reflects an ongoing frustration among at least a few that not enough is happening regarding promoting housing.

Eight American metro areas have homes worth over $1 trillion – and one involves a large suburb

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What do all the housing values in a city add up to? For eight American metro areas, the housing values are over $1 trillion:

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According to residential real estate website Redfin, less than 10 metro areas in America are now worth $1 trillion in collective real estate home values. Most of those areas make sense for the list, like New York, Boston and Atlanta (the latter of which has a metro population of more than 6 million people). Anaheim, on the other hand, has a population of about 350,000 people, and for years fought to disengage itself from the ignominious nickname “Anacrime,” despite being home to the so-called happiest place on Earth…

The Orange County city reached its recently minted status due to an explosion in the real estate market in that area, with home prices up more than 12% over the past year, Redfin says. To source its findings, the Seattle-based company relied on aggregate home sale data for almost 100 million homes across the U.S.

San Francisco, meanwhile, has not reached trillion-dollar status yet, but that’s only because the city itself is so small. When combined with other large area real estate markets in San Jose and Oakland, the number jumps to a staggering $2.5 trillion. The other cities that did cross the $1 trillion threshold are Chicago, Washington, D.C., and Phoenix.

Nationally, the biggest overall rise in home values comes from more rural and suburban areas, Redfin says. The high cost of homeownership in Anaheim specifically points to ongoing issues in California around housing supply and affordability. Orange County has long been a wealthy area in aggregate, with pockets of affordability. Now, many prospective homeowners may be feeling the squeeze to leave, departing for less expensive homes in places like the Inland Empire and Bakersfield.

To some degree, this measure may not have much value. The biggest metro areas are on this list. (Missing are Dallas and Houston.) Have a lot of people and have relatively high prices and a place ll make this list.

On the other hand, Anaheim does seem like a bit of a surprise. It is a suburb of Los Angeles. In 1950, it had just over 14,500 residents. It grew tremendously in the postwar era. According to the Census Bureau, it has a median housing value of over $713,000.

What other suburbs could be close to joining this list? They would need to be large and expensive. This would rule out many communities in the Northeast and Midwest where suburbs tend to be smaller. Are there some Sunbelt or West Coast suburbs that could join the list soon?

Rents set by algorithm and how housing prices are set

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New tools allow landlords to set rental prices and this has led to lawsuits:

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Instead of getting together with your rivals and agreeing not to compete on price, you can all independently rely on a third party to set your prices for you. Property owners feed RealPage’s “property management software” their data, including unit prices and vacancy rates, and the algorithm—which also knows what competitors are charging—spits out a rent recommendation. If enough landlords use it, the result could look the same as a traditional price-fixing cartel: lockstep price increases instead of price competition, no secret handshake or clandestine meeting needed…

According to the lawsuits, RealPage’s clients act more like collaborators than competitors. Landlords hand over highly confidential information to RealPage, and many of them recruit their rivals to use the service. “Those kinds of behaviors raise a big red flag,” Maurice Stucke, a law professor at the University of Tennessee and a former antitrust attorney at the Department of Justice, told me. When companies are operating in a highly competitive market, he said, they typically go to great lengths to protect any sensitive information that could give their rivals an edge.

The lawsuits also argue that RealPage pressures landlords to comply with its pricing suggestions—something that would make no sense if the company were merely being paid to offer individualized advice. In an interview with ProPublica, Jeffrey Roper, who helped develop one of RealPage’s main software tools, acknowledged that one of the greatest threats to a landlord’s profits is when nearby properties set prices too low. “If you have idiots undervaluing, it costs the whole system,” he said. RealPage thus makes it hard for customers to override its recommendations, according to the lawsuits, allegedly even requiring a written justification and explicit approval from RealPage staff. Former employees have said that failure to comply with the company’s recommendations could result in clients being kicked off the service. “This, to me, is the biggest giveaway,” Lee Hepner, an antitrust lawyer at the American Economic Liberties Project, an anti-monopoly organization, told me. “Enforced compliance is the hallmark feature of any cartel.”

The company disputes this description, claiming that it simply offers “bespoke pricing recommendations” and lacks “any power” to set prices. “RealPage customers make their own pricing decisions, and acceptance rates of RealPage’s pricing recommendations have been greatly exaggerated,” the company says.

It will be interesting to see how the courts decide in this area.

I would be curious to hear how this process differs from the way housing prices are determined. The “correct price” does not just emerge. There are a set of actors – such as realtors, appraisers, and websites – that contribute. There are local histories that inform current and future prices. The housing market follows particular patterns and I recommend reading sociologist Elizabeth Korver-Glenn’s 2021 book Race Brokers: Housing Markets and Segregation in 21st Century Urban America on this topic.

Is the primary difference that there is not a centralized tech source for housing prices? (But maybe there is – how much has Zillow and its Zestimate changed the game?) Or are the new actors viewed with more suspicion than others (tech sector versus realtors)? Or are we in a particular social moment where high costs of housing prompt more questions and thoughts about alternative?

When housing values and property taxes both go up

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American homeowners want their property values to increase. It builds their wealth. The equity they have in the home can be used for other purposes. They can feel like they made a good investment.

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On the other hand, fewer homeowners like the idea of paying higher property taxes. Particularly in states with higher property taxes, like Illinois, this is a constant source of frustration: don’t we pay too much? How come other states get away with much lower property taxes?

But, these two forces might just be linked. If your property is worth more, the taxes you pay on that property are likely to go up. In other words, the kind of property appreciation many homeowners want means higher taxes on that more valuable property. (This is not always the case: the value may go up but the property tax rate goes down or some program or exemption limits the property tax amount.)

In a dream world for homeowners, their property would get more valuable and they pay less in taxes. It does not often work this way so instead they may complain about having to pay more in the short term for the ability to gain more money down the road when they sell the property.

Are falling housing and rent prices good or bad for a community?

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The cost of housing in Austin, Texas has recently fallen. Is this good or bad in the long run for the city? Some details on the falling prices:

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Home prices and apartment rents in Austin, Texas, have fallen more than anywhere else in the country, after a period of overbuilding and a slowdown in job and population growth. 

That marks a sharp reversal from previous years when Austin’s real-estate market was sizzling. The city attracted waves of remote workers on six-figure tech salaries. Others arrived after companies such as Tesla and Oracle moved offices there, taking advantage of lower taxes and less business regulation. Austin’s economy grew at nearly double the national rate, and it became the country’s 10th-largest city. 

Now, it is contending with a glut of luxury apartment buildings. Landlords are offering weeks of free rent and other concessions to fill empty units. More single-family homes are selling at a loss. Empty office space is also piling up downtown, and hundreds of Google employees who were meant to occupy an entire 35-story office tower built almost two years ago still have no move-in date. 

On one hand, falling prices are good news for residents. Housing is more affordable. People have more options. Getting in to better housing can mean better day-to-day experiences plus the opportunity to develop wealth.

On the other hand, falling prices mean less demand for development. This could mean slower population growth. Status is tied to population and interest actors have in snatching up properties. Tax revenues will be lower than they could be if property values do not shoot up.

Many American communities experience this tension. Property owners want values to go up. They do not necessarily want to pay higher taxes with these rising values but they will be happy when they sell the properties. More people want housing at reasonable prices. But, relatively few people want to live in places known for low housing values or people may not want to live in places where property values do not go up.

Baby Boomers own a lot of large homes

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A new analysis suggests older adults own a larger proportion of large homes than they did 10 years ago:

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As a result, empty-nest Baby Boomers own 28% of large homes — and Milliennials with kids own just 14%, according to a Redfin analysis released Tuesday. Gen Z families own just 0.3% of homes with three bedrooms or more…

This is a change from the historical norm, according to the research. Ten years ago young families were just as likely as empty nesters to own large homes…

For those who own their home outright, the median monthly cost of owning a home, which includes insurance and property taxes, among other costs, is just $612, according to the report.

“Logically, empty nesters are the most likely group to sell big homes and downsize,” said Bokhari. “They no longer have children living at home and don’t need as much space. The problem for younger families who wish their parents’ generation would list their big homes: Boomers don’t have much motivation to sell, financially or otherwise.”…

This speaks to one of the assumptions of American housing: older adults are expected to move out of larger homes and move to smaller homes or ones that better suit their needs later in life. This frees up their homes for the next generation to move into.

Is this the way it has always worked? Might patterns change heading into the future?

Several thoughts on these trends:

  1. Americans like bigger homes. As the size of American homes has increased, might Americans want to keep these larger homes as long as possible?
  2. Houses are places to live and strategic investments. Older residents may not need all that space but wouldn’t they want to cash out as late as possible on this large asset?
  3. An emphasis on living independently and youthfully may mean that staying in a house is a sign of vitality (while moving would be a sign of weakness). Why sell if you can still live in a big house?

This could be the product of a unique confluence of factors in recent decades: a sizable birth cohort, a change in what housing is and what housing is available, and an unprecedented growth in housing values.

“Stuck between the hot housing market and the hot job market”

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Housing values are up and there are jobs to be had – but many of the jobs to work are in places where housing is expensive. What gives?

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All over the country, employers like McDonnell are finding themselves stuck between the hot housing market and the hot job market. In Oregon, rural school districts have puzzled over how to provide enough housing for teachers. In rural Arizona, hospitals are renting out rooms to staff members. In Massachusetts, the state has helped support temporary housing for summer workers on Cape Cod.

The result is a kind of tug-of-war between two of the economy’s main pillars. On a small scale, these transactions are just business owners and employees working things out in one-to-one agreements. But the underlying tension caused by the housing market could permanently shape how people decide where to live, what jobs to take — and whether the economy is working for them.

No one thinks a lack of housing is enough to spoil momentum in the labor market. Employers have added workers for 34 consecutive months, after all, and the job market is still churning. But some economists still worry about the knock-on effects of the country’s housing challenges. Until enough homes get built in the places that need it most, more companies will have to get creative — through higher pay, remote work options or other perks — to ensure their workers can find a place to live…

Martin estimates that offers don’t work out more than half the time, largely because of housing issues. And even when they do, Martin said, she’s never seen so many professionals in mid-level management roles, earning $60,000 or $75,000 per year, who still need roommates to make it work.

I remember a presidential candidate suggesting people should be able to live near where they work…

The most interesting part of the article above is that it sounds like at least a few employers are getting creative in providing housing so they can have workers and stable employees. If the market or government cannot provide housing, employers and organizations can help.

This is a long-term issue in the United States that sometimes goes by the name of “spatial mismatch.” This refers to the situations where the jobs available do not line up with where people live. Particularly with jobs scattered throughout metropolitan regions, workers have difficulty finding housing near work opportunities and/or need to commute long distances.

Since job growth has continued for a while now, does this mean only certain workers have been able to take advantage of certain jobs? For example, those with more resources or housing equity in their current location or an ability to commute long distances could have an advantage for jobs. At some point, will there not be enough workers to fill some of these spots?

If NIMBY movements wanted to protect property values, were they wildly successful?

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The last fifty or so years of life in the United States has included numerous NIMBY efforts by residents (see recent examples here, here, and here). One of the reasons for NIMBY activity is to protect property values. Did NIMBY efforts lead to higher property values?

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I was thinking about this recently after reading more Internet/social media chatter about the rise in housing values in recent decades. The appreciation in value is astounding in many places.

NIMBY efforts could have contributed to this in multiple ways. They may have limited housing supply. One common argument regarding promoting more affordable housing prices is to build more housing units. This will reduce demand for existing units.

Or, NIMBY movements may have limited what communities will build. When they do construct housing, it is of similar or better quality of what is already there so as to not create downward pressure on prices.

Or, effective NIMBY efforts have kept less desirable uses away from housing. In particular, single-family homes are often located away from other land uses perceived to threaten property values.

These actions led by residents may not be the only reason housing and property prices have soared. Residents are not the only actors with influence in housing markets and communities; certainly the actions of those involved in real estate, local officials, and others contributed to increased property values.

However, taking the long view, if NIMBYs have acted in order to protect property values, does it appear – whether they directly caused it or not – that this was successful?