According to Zillow, here is average home price growth over the past five years in our ten biggest cities:
This surprised me. The highest price growth was in the sprawling sunbelt cities that have fewer exclusionary zoning rules and therefore more homes being built. The traditional big cities like Los Angeles and New York, by contrast, have relatively low price growth.
Phoenix, Dallas, Los Angeles, and Washington DC have all peaked and prices are now falling. The others have flattened but haven't yet seen price decreases.
It's worth noting that this is raw home price. It doesn't take into account mortgage interest rates, which have skyrocketed this year. In cities like Phoenix, this produces the worst of all worlds: monthly mortgage payments are going up on homes whose value is going down. It's a miracle anyone is still buying houses there.
This is one of the cases where it may be worth presenting the data both in percentage growth terms, and raw terms. Because a smaller absolute increase on a smaller starting base could produce a large percentage growth figure. LA real estate is already very expensive relative to median salaries.
Yeah, this. I think this is the reason behind Phoenix/Dallas/Atlanta in the chart. Those places (and others like them) weren't notoriously expensive before and were routinely on those listicles for 20 or 30 most affordable/best/whatever places to live, but (without looking at the numbers) probably had higher percentage growth in prices.
Yeah. A family member’s home in a nice newish suburb of Houston was $275,000 in 2017, and is estimated at $400,000 now.
An increase of $125,000 or 45% over 5 years. The chart says Houston overall averaged 30% over 5 years, some areas appreciated more than others obviously.
$125,000 over 5 years would probably only be a 10-15% increase for Sacramento, Portland, or Denver.
The really crowed places like NY City, LA, SF Penninsula etc, probably reached a kind of population saturation based on geographical limits at various times in the past. People may still be expecting low-price homes in some of the still-growtng places.
Hard to believe Phoenix went up 70%?
In any event, its the best data there is, but because of the uniqueness of housing its not as good as, say the price of apples and oranges.
You can stop buying apples if you like, but if you just keep buying apples then a price increase can be fairly said to affect you.
For everyone who owns houses, prices can be almost irrelevant, and interest rates can be totally irrelevant unless you are refinancing.
For first time buyers, its total relevance. But since its a market, those buyers can always buy a less expensive house, or try to wait it out. I have seen in the SoCal market how the less expensive house option plays out.
I believe it. Phoenix looks to be in a housing crunch, despite being a city in the middle of the desert where we probably shouldn't have big cities. Phoenix's rental market had a vacancy rate of 3.8% earlier this year, which is tiny. https://www.bizjournals.com/phoenix/news/2022/02/01/what-to-know-about-the-phoenix-rental-market.html
Obviously, rental housing and owned housing are replacement goods for each other. If rent goes up, that raises the demand for its replacement good (owning a home), which raises the price of the replacement good (on top of whatever other factors are there).
According to FRED, for the entirety of the pandemic the housing market in Phoenix was heating up. The number of active listings is indicative of supply. It's only recently gone back up (way up, quickly), but the effect low supply had on price will already be baked in and is probably represented in Kevin's graph. https://fred.stlouisfed.org/series/ACTLISCOU38060
"mortgage payments are going up on homes whose value is going down"
If you got a 30-year mortgage in most of 2020 and 2021 you got an all-time low rate and your payments will not be going up. Prices will probably be going down for a while because of somewhat lower demand, but there is still a nationwide housing shortage. And the rate now is not abnormally high - average 30-year since 1971 is 7.7% (see FRED). Aside from FOMO (see the recent piece by Robert Shiller in the NY Times on this) there are reasons why people will keep buying.
A couple of caveats. "Prices are now falling" is only true when you look at inflation. The headline price probably isn't falling, but staying steady. And I'm sorry, but homebuyers don't look at home prices in inflation-adjusted terms, or at least they don't on shorter time scales like a couple of years. Inflation-adjusted prices only matter to buyers/sellers at a macro level and over the long term. Most people don't have salaries that are indexed to inflation (does anybody?). So if you're still making 100K today (and made 100K a year ago) and those houses that cost 500K a year ago still cost 500K, you don't give a rat's ass if the inflation-adjusted price of the house is now 490K or whatever. Further, even if you are making more, nominal prices matter for individual buying decisions on these time scales.
Those DC area market prices (where I am) haven't fallen overall. It just so happens that I'm on both sides of the market right now, sort of, and can confirm that some listings are still going for more than asking price and others are hanging around for a month or two before selling for a few percent below original list price. My overall impression is that prices are holding steady, but it depends greatly on the house itself (much more so than before), almost certainly due to the interest rate increases cooling off the market a little bit. This impression tracks with a slight decrease in inflation-adjusted prices.
In my neighborhood the market was red hot in the spring and summer but now has quieted down - the buyers disappeared so houses put on the market after labor day expecting to get top dollar are going to either need to drop their asking price or wait to see if the market improves in the springtime.
Wait, so SF is smaller than Atlanta?
SF isn't that big because it's broken out from the region, SF and San Jose are separate statistical areas, not sure if Oakland is also separate.