Home prices continue to reach record highs in the United States.
The National Association of Realtors released data showing that average home prices in June 2021 reached $363,300 — a 23.4% increase over the average of $294,400 in June 2020, as well as the 112th consecutive month of year-over-year gains.
The organization says:
Total existing-home sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, grew 1.4% from May to a seasonally adjusted annual rate of 5.86 million in June. Sales climbed year-over-year, up 22.9% from a year ago (4.77 million in June 2020).
Total housing inventory at the end of June amounted to 1.25 million units, up 3.3% from May’s inventory and down 18.8% from one year ago (1.54 million). Unsold inventory sits at a 2.6-month supply at the current sales pace, modestly up from May’s 2.5-month supply but down from 3.9 months in June 2020.
Properties typically remained on the market for 17 days in June, unchanged from May and down from 24 days in June 2020. Eighty-nine percent of homes sold in June 2021 were on the market for less than a month.
NAR chief economist Lawrence Yun sees no signs of a serious fallout: “At a broad level, home prices are in no danger of a decline due to tight inventory conditions, but I do expect prices to appreciate at a slower pace by the end of the year. Ideally, the costs for a home would rise roughly in line with income growth, which is likely to happen in 2022 as more listings and new construction become available.”
The Northeast saw year-over-year price increases of 23.6%; in the South, Midwest, and West, prices rose by 21.4%, 18.5%, and 17.6% respectively.
At median costs of $507,000, homes in the West are generally the most expensive, followed by homes in the Northeast ($412,800), South ($311,600), and Midwest ($278,700).
As the United States economy recovers from COVID-19 and the lockdown-induced recession, the Federal Reserve is targeting near-zero interest rates and buying $120 billion in assets each month — benchmarks intended to stimulate economic activity by increasing the supply of the dollar.
The end goal of the Fed’s current policy regime is to manipulate the “federal funds rate” — the interest rate at which private banks can make short-term loans to one another. Because the Fed is currently targeting a near-zero rate, other interest rates in the economy — including mortgage rates — are low as well. At least partially due to quantitative easing, it is less expensive for American home buyers to take out a loan and purchase a house, leading to an increase in the number of homes demanded and a subsequent increase in prices.
Supply issues are a concern as well. Amid a rocky labor market recovery, the American housing market is short by up to one million workers. Meanwhile, construction of new long-term housing has steadily slowed over the past several decades such that demand exceeds supply by over five million homes.