In this piece, we will take a look at the 12 cities where home prices are going up right now. You can skip our discussion, business implications, and head on over to the top 5 Cities Where Home Prices are Going Up Right Now.
The housing industry has had a topsy turvy ride these past couple of years. The coronavirus pandemic became both a blessing and a disaster for the sector. While the pandemic strained household finances by reducing incomes and making it difficult for people to pay rent, at the same time, it also ushered in the revolution of remote work and enabled people to move away from expensive cities and to suburban areas where housing is cheap. At the same time, as the Federal Reserve attempted to stymie the negative effects of lockdowns on the economy by reducing interest rates, more people found out that buying a home became much easier than before.
However, as they say, there's no free lunch. The shift to suburban areas and the low interest rates ended up significantly stimulating the industry - so much so that as life started to return to normal, home prices jumped by simply unbelievable rates. To gauge just how serious and significant this growth was, consider data from the Federal Reserve. It shows that the effect of the pandemic and the resulting recession is simply unimaginable unless you study the data. The central bank's analysis reveals that housing prices in America jumped by a whopping 19.3% in July 2021. This was nearly five times the rate at which they had grown during the years before the pandemic and a two decade high at the least.
The Fed believes that the reasons behind this shift were easy access to credit, a larger proportion of home buyers on the market, and a tight supply market that contributed to scarcity and made existing property more valuable. Additionally, another major factor that contributed to the price appreciation was expectations. Just as they influence consumer goods prices, expectations about future home prices also drive up the demand in the industry since people believe it is prudent to make a purchase now rather than wait for the prices to come down after peaking. According to the Fed, the inverse of a metric called the 'user cost of housing' which measures the difference between mortgage rates and housing price expectations was the highest since 1974 in 2022 - and the result on the market is clear for everyone to see.
So what are these results right now? On this front, data from Redfin provides some insights. It shows that the median home price in America peaked at a five year high in May 2022. However, from then until January 2023 it started on a downward trend that saw it drop from approximately $425,000 to $385,000 - for a substantial drop. Crucially, looking solely at median prices would suggest that perhaps home buyers are shifting their focus on lower priced homes in a high interest rate environment. As a deeper look at the data shows that home sales had peaked at a little over 600,000 in June 2022 but dropped below 300,000 in January.
On a positive note, as we'll discuss later, this downturn appears to be reversing as the market acclimatizes itself to a high interest rate environment. This is because according to Redfin, the median sale price of a home in America right now is $400,000 as of March 2023 for a small 3.4% annual drop. In other words, you'd still be better off having bought a home instead of just sitting on cash as inflation right now is higher than 3.4% - however, if you had invested in money market funds then the return would have been higher.
Building on this, the Federal Reserve has even more data for the residential real estate market that merits a deeper look. This data outlines that in March 2023, 4.4 million homes were sold in America. Comparing this to the year ago figure reveals that this marks a painful 22% annual drop, becoming the biggest victim of a high rate environment. However, narrowing our focus down to the past four months shows that a recovery might be in play. This is because while existing home sales tanked to four million in December 2022, they jumped back to 4.5 million in February and marked only a slight drop in the following month. So, the jury's still out on what might occur in the housing market in the future.
Taking further stock of the market, data from the National Association of Realtors (NAR) provides valuable insight into the reasons behind the drop and rise in the existing home sales shared above. By quantifying home affordability through an index, the NAR shows that the index dropped to 98.6 in March after jumping to 103.8 in February. This shows that as affordability became an issue, the number of homes sold dropped and vice versa. Further cementing this conclusion is the fact that the index was at 101.4 in December for a three month high and at the second highest level in eight months - and the result was clear as the market tanked.
Finally, to round off the current situation in the housing market, it's important to see what the companies that make and sell homes are saying. On this front, the management of LGI Homes, Inc. (NASDAQ:LGIH) shared valuable insights during the firm's latest earning call where they outlined:
The LGI Homes team delivered solid first quarter results and laid the groundwork for a successful year. In the second half of 2022, as rates spiked and demand slowed, our focus shifted to moving inventory and generated cash through a combination of increased advertising, incentives, price discovery, slowing starts and reducing home costs. That work is now complete. We closed 1,366 homes and generated over $487 million in revenue despite starting with limited homes in inventory and our lowest backlog in 4 years.
Keeping these comments in mind, let's take a look at the American cities where home prices are growing.
12 Cities Where Home Prices are Going Up Right Now
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Our Methodology
To compile our list of the U.S. cities where home prices are going up, we used data from Standard & Poor's S&P CoreLogic Case-Shiller Metro Area index. This index measures home prices in key American metropolitan areas and it covers housing price percentage growth or drop for twenty metropolitan areas. Out of these, the cities in which home prices are rising are listed below. By the way, some of these cities are among the 30 cities with the highest homelessness rate.
12 Cities Where Home Prices are Going Up Right Now
12. Minneapolis, Minnesota
1 Year Home Price Change: 0.54%
Minneapolis is the most populous city in Minnesota as it houses more than four hundred thousand people. It is one of the largest economic centers in the Midwestern United States.
11. Washington, D.C.
1 Year Home Price Change: 1.14%
Washington D.C. is one of the most expensive cities to live in America. Its economy is made up primarily of the government contracting sector and related industries.
10. Detroit, Michigan
1 Year Home Price Change: 1.58%
Detroit is an economic hub in its state. It is also the most populous city in Michigan, housing more than half a million people. The Detroit economy is made up of a variety of firms in the financial, services, and other industries.
9. Dallas, Texas
1 Year Home Price Change: 1.98%
Dallas is the third largest city in Texas and among the top ten most populous regions in America. It has a diversified economy full of technology, energy, and other companies.
8. Boston, Massachusetts
1 Year Home Price Change: 2.21%
Boston is the capital city of Massachusetts. It is a hub for the high technology and healthcare industries in the U.S. and houses some of America's largest hospitals.
7. New York City, New York
1 Year Home Price Change: 3.59%
New York is the financial heart of America and the world. It is also the biggest city in the U.S. housing millions of people.
6. Chicago, Illinois
1 Year Home Price Change: 3.59%
After New York and Los Angeles, Chicago is the third largest city in America. It is also one of the biggest business regions in the U.S. but has some of the highest crime rates too.
