Home Prices Remain High Causing Higher-Wage Households To Rent

Higher interest rates were expected to slow homebuying and prompt sellers to drop their prices, but only part of that prediction has come true.

Increased debt costs did reduce buyer appetite, but major valuation adjustments have not yet occurred. The median price of an existing home rose for a third consecutive month in May to $389,400, the highest since July 2022, according to a report from commercial real estate firm Marcus & Millichap.

“Upward price momentum is fueled by a dearth of homes coming to the market, sustaining a level of buyer competition amid a shortage of alternatives in most metros,” the report states.
With house prices so high, many people who would otherwise buy a home are choosing to rent instead, pushing the income of renters to an all-time high, according to Marcus & Millichap. The median income of a renter household in the U.S. climbed to $47,600 in the second quarter of 2023, a trend that bodes well for the absorption of newly constructed rentals.

Housing market dynamics continue to be fueled by the lack of existing homes available for sale, a trend that did not improve during the spring homebuying season when more homes are typically listed for sale, according to a report from the Fannie Mae Economic and Strategic Research (ESR) Group. As a result, home prices have increased in recent months.

“Housing prices continue to show stronger growth than what was previously expected given the suddenness and significant magnitude of mortgage rate increases,” said Doug Duncan, senior vice president and chief economist at Fannie Mae. “Housing’s performance is a testimony to the strength of demographic-related demand in the face of baby boomers aging in place and Gen Xers locking in historically low rates, both of which have helped keep housing supply at historically low levels.”

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