Home prices are on a rocky foundation
Whether it be a ranch in Malibu or a Manhattan high rise, we all have a dream home that will not just fulfill our childhood dreams, but become an investment for the future. Today, that aspirational residence may be out of reach for many Americans.
With mortgage rates the highest they’ve been in the past 20 years, at approximately 7%, potential home owners are growing weary of the current market.
Instead of doom-scrolling on Zillow, fearing the day that we might have to put a down payment on a home, one way we can keep track of how the United States housing market is through the Case-Shiller U.S. National Home Price NSA Index.
This metric measures the average value of single-family housing prices, and is vital to understanding the relationship between the housing market and our broader economy. The Home Price Index is a metric used not only to make sense of when Americans should buy a home, but an economic indicator.
Understanding the impact of home prices can be an important indication for other sectors of the economy like construction employment rate, interest rates and homelessness. Together, these indicators can translate to the increase or decrease of home prices.
For instance, when the demand for houses outweighs the supply or capability for U.S. cities to build homes, this could lead to an increased homeless population and potentially an increased employment rate for construction workers.
Today, potential home buyers are at a crossroads, where demand for homes is only increasing, leading to rising prices. Based on data from the S&P Dow Jones Indices, the national Home Price Index has risen by nearly 9% in the past five years. Put another way, the average price of a single family home sold for approximately $200,000 in 2018, but now goes for about $300,000.
Along with jobs and national housing numbers, comparing the Home Price Index between cities is another way to understand a region’s growth and opportunity for potential business and buyers.
In Los Angeles for example, home prices mirror the national increase and peaked in a similar pattern. In growing markets however, such as Boise, Idaho,home prices have spiked in the past five years, from about $260,000 to nearly $500,000 today.
Even though the majority of Americans believe that achieving the American Dream is cemented with the purchase of a home, many economists predict a continuation of increased home prices, at least for the next five years. There is a healthy debate among forecasters about how home prices will fluctuate in the coming years. These are just predictions, but the steadily increasing demand, and shorter supply, for affordable homes persists. The Home Price Index may provide insight into a complex system of understanding how the housing market fluctuates and marks an economy.
