Home prices have risen sharply in most parts of the U.S. in the last two years. So far in 2022, the average price nationally has gone up by almost 20% year over year. In some cities, the figure is much higher. Measured over the course of just more than two decades, home prices in one city have risen over 300%.
The more recent rise in home prices has been driven by a few factors. The first is that mortgage rates have been at multi-decade lows, which last year fell below 3% for a 30-year fixed mortgage. (This period is over. Mortgage rates have risen to 5% and are likely to be 6% soon.)
People in America have become much more mobile. As they relocated to places they want to live, instead of residing in places they have to live, demand in popular markets has lifted prices considerably. This trend was triggered by the COVID-19 pandemic shuttering of many offices, some of which have not reopened. Millions of Americans are working from home.
Much of the recent relocation activity has been a move from expensive coastal cities like New York and San Francisco to smaller metros inland. The smaller metros generally have less expensive homes, and people who are attracted to them believe they will have a better “quality of life” than in sprawling, densely populated places.
A substantially longer-term review of home prices shows that over the last 22 years, prices have risen very sharply in West Coast cities and have languished in older industrial metros.
The S&P CoreLogic Case-Shiller Indices home price measurement is the gold standard of real estate value. It is most closely watched for month-over-month and year-over-year data in the sector. The most recent report was for February. It showed an increase nationwide of 19.1% compared to the same month a year ago. Craig J. Lazzara, Managing Director at S&P DJI, commented: “U.S. home prices continued to advance at a very rapid pace in February”.
Both on a national level and for the 20 cities it measures, the base year is January 2000 when all markets were assigned an index figure of 100.
The February home price index for San Diego was 401.45 or just over 300% since January 2000. It was trailed very closely by nearby Los Angeles where the index was 397.37. Nationwide, the index was 286.68. The city with the weakest increase over the period was Cleveland which posted an index of 162.39, followed closely by Detroit at 163.68.
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