Why Home Prices In The U.S. Have Surged By Nearly 50% Since 2020

If you're an American looking to buy a home and feel like your money isn't going as far as it did a few years ago, you're not imagining things. According to a recent report from Case-Schiller National Home Price Index, home prices in America have spiked by 47% since 2020. That is a significant price increase by any standard, making life difficult for most would-be homeowners.

The 47% jump is a trend that has seen home prices rising steadily for the last 25 years. In the 1990s, the same study showed the average home price in America was just under $125,000. A buying boom fueled by easy credit and an avalanche of loans to less-than-qualified buyers saw the average home price surge through 2007, only to retreat after the financial crisis.

The Federal Reserve's policy of maintaining low interest rates to stimulate the economy continued to drive housing prices higher. By the end of 2020, the median home price had jumped to $327,000. This was already more than double the price in the 1990s, but low interest rates and rising wages softened the blow, allowing many Americans to keep pace.

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However, no one could have predicted the COVID crisis and its immediate effect on home prices. Remote work opened up a world of possibilities to high-wage earners regarding where they lived, as they brought their buying power to less expensive markets nationwide. Suddenly, the Sunbelt was hot, and states like Florida and Texas began seeing price increases reminiscent of New York and San Francisco.

That has resulted in a 47% increase in median home prices to $420,000 in the first quarter of 2024. The current median price reflects a 20% price increase in the last year. According to Lance Lambert, co-founder of Resi-Club, whose company compiles the Case-Schiller National Home Price Index, the housing price increases in the last four years are larger than the previous 30.

Most industry analysts cite a lack of inventory as the biggest driver of prices. As millions of Americans relocated to the Sunbelt, they quickly consumed the available inventory, and new home construction hasn't kept up with demand. Secondhand homes would have increased the available inventory in the past, but other unforeseen factors prevented that.

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As the world pushed past the COVID crisis, broken supply chains and other factors caused runaway inflation, and the Federal Reserve responded by raising interest rates. This may have tamped inflation, but a side effect was that higher interest rates encouraged anyone locked into a pre-COVID interest rate mortgage to stay put. That translates to even fewer homes on the market for sale. 

Higher interest rates also make it more expensive for developers to borrow the capital they need to build enough new inventory to ease America's current home price crisis. This creates a difficult situation for prospective homebuyers. Not only have prices grown much faster than incomes, but high borrowing costs have depressed their buying power even further. Make no mistake; today's American homebuyers are paying more but getting less. 

The sad irony is that they may be the lucky ones. At least they could find a home they liked and close a deal. Median home prices will unlikely decrease dramatically unless millions of new units of inventory hit the market in the next few years. If current median home price trends continue, homebuyers may look back at 2024 as "the good old days."

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