Why are U.S. home prices still hitting new highs? Dr. Lisa Sturtevant, Chief Economist for Bright MLS joined Cheddar's Opening Bell to discuss the state of the U.S. housing market.



Opening Bell

U.S. Home Prices Hit a Record High in Q2

for more on this in the state of the U. S. Housing market. Dr lisa Sturtevant is, here she is, the chief economist for Bright Mls. Thank you so much for joining us dr lisa. I gotta ask, you know, median home prices jumped to a record high in the second quarter despite surging mortgage rates. Is there any sentiment that these sky high prices are near or hopefully at their peak? Yeah, Shannon thanks so much for having me. And that's such a great question. And we have seen in the second quarter that home prices were still rising pretty rapidly. But there's been a pretty big change during the summer. So when you look at data from june and july we actually are starting to see price growth slow and we're seeing that pace of price growth slow because buyers are pulling back as mortgage rates are rising. Housing affordability is a bigger challenge for some buyers. And then inventory is starting to expand just a little bit. As you mentioned, it's at very low level still, but it's starting to expand just a little bit. So we're starting to see actually that that year over year price growth is starting to slow that double digit price growth, Shannon was just not sustainable given how much faster home prices were rising than incomes. And so what did the surging home prices tell you about the red hot housing market at this point? Overall. Yeah. So I think what we saw over the last couple of years during the pandemic was just this incredibly strong demand for home ownership fueled by historically low mortgage rates by increased savings among individuals and families. And frankly by the fact that we were all sort of shut at home working from home, learning from home. We didn't have anywhere else to to spend our money. And as we were emerging from the covid 19 pandemic, we're starting to see people are spending their money on other things. As I mentioned, we're starting to see buyers who are feeling the pinch of rising mortgage rates, but also higher inflation. And we will start to see this cooling of buyer activity continue in the second half of the year. Well, amid these record high prices surging inflation and housing affordability, it seems like it's beginning to worsen. It's just people just can't afford it. So they're renting instead. But what could this mean for the US economy at large? Yeah, I think that's a great point. I mean, we talk about home prices rising so quickly and, you know, it might have been that someone was saving for a down payment this spring and they were ready to make a purchase. But when rates jumped up over the spring and into the summer, all of a sudden homeownership wasn't, wasn't an option. But then you turn to the rental market and rents are still rising at double digit rates and so this this very tight inventory on both the home ownership and the rental side has created affordability challenges across the board. And and frankly, it's, you know, it's hitting folks hardest who were also hardest hit during the pandemic people whose jobs may be at at a little bit more risk during the pandemic, People whose incomes aren't growing quite as fast. And so going forward without an increase in inventory, right? Without an increase in supply, it is still going to be challenging for many folks to access homeownership or the rental market. And a lot of people, they typically get a starter home first and then they work their way up to bigger homes, especially as they start having families. So we're not seeing as many of those gateway homes, it seems like in my opinion. So are there currently enough starter homes on the market right now? Yeah, it's a really great question. And you, and and the fact of the matter is we have this huge population of millennials who right now, the oldest millennials are reaching their early 40s, if you can believe it, and they're in this prime first time home buying age, this prime age where they're getting married and having Children looking out into the market for those starter homes and having a really hard time finding those homes, builders are having a really tough time building homes at those lower price points and then there is a whole set of existing home inventory where existing homeowners are staying in their homes longer. They're sort of not freeing those homes up for uh for for young families. Um and I'm I'm looking at population of baby boomers who are remaining in their homes longer. It used to be folks stayed in their homes 78 years. And now we're looking at 11 12 years and so many of those folks have locked in at a very low long term mortgage rate. And so those harms are going to be coming on the market anytime soon to meet that that first time home buyer demand. And since we said, you know the inventory is still pretty low, you know, supply is finally starting to pick up a little bit. I think that's also because schools are starting fall is coming. People are trying to get in before it's too late. So do you expect that we'll see maybe the housing supply and demand equalized at some point soon. I think that we are still pretty far away from the housing demand and supply equalizing. So uh folks in the real estate community tend to look at between five and six months of supply as being the sign of a balanced or healthy housing market nationally, we're at about three months of supply, a little bit less than three months of supply. And then of course there's a lot of markets um here in the mid atlantic in the D. C. Area for example, we have less than 1.5 months of supply of inventory. So in most markets we're still pretty far away from a balanced market and um new construction, which had been picking up a little bit um had pulled back for the last couple of months. We'll get a new housing starts data tomorrow and we'll see where the builders are headed. But but it seems to me that over the near term and really into the mid term, we're likely to have a very low inventory housing market for the time being. Mm. And the rise in home prices is also coinciding with the rise and rental prices. We talked a little bit about that earlier. So what's your advice on navigating this market right now? Should you buy, should you rent? Right, That's such a great question. And um, you know, it all comes down to your personal individual and family situation. So there are many prospective homebuyers who decided to wait on buying a home as they saw mortgage rates rise at the same time, they were starting to see inventory increase, which means they had some more choices and maybe a little bit less competition in the market. I expect that in the fall, during this fall market, we're going to see that that fire demand that had really pulled back significantly in the summer start to come back on the market as there's more opportunities, more inventory available. I think either way, whether it's on the home ownership side or the rental side, folks are still going to find fairly limited choices. Well, hopefully people will be able to find the choice that suits them best, dr lisa, chief economist at Bright, MLS. Thank you so much for joining us.