After booming home prices, a small correction
After booming home prices, a small correctionExpensive tech-centric cities that rose during the pandemic have recently fallen the mostHi! I’m Aziz. My newsletter contextualizes economic news using data visualization. These days I’m focusing more on housing—let me know what you think by replying to this email. It’s not surprising that home prices have declined over the past year—they soared during the pandemic, and the Fed’s hikes have made mortgages more expensive. But a few aspects of the correction are worth noting: Price falls have been tiny compared to the pandemic boom. Prices have fallen in some areas way more than others. Pandemic ‘zoomtowns’ fell the most. Unaffordable tech-cities have also fallen more than average. Your first question when looking at a chart like this should be, is this normal? The answer is no, this is not normal—for a few reasons. First, after a wild surge in price like we saw during the pandemic, and following the sharpest Fed hiking cycle in 50 years, you’d have expected prices to have fallen by more than they have. The pandemic surge in home prices was truly historic—the only time prices have risen by more was the massive housing bubble that led to tumbling prices and the Great Financial Crisis in 2008. The pandemic market boom also happened at twice the pace. Even after the recent decline, home prices are still 34% higher than they were in mid 2020. Some reasons for the tepid decline in prices might include:
The second reason the recent moves in home prices are weird is that they have been so much more intense in some places than others. As Taylor Marr, an economist at real estate company Redfin has pointed out, price moves haven’t been this dispersed since the housing crash in 2008. We have been through some unusual times over the past few years, and the housing market is reflecting that. What does seem deeply sensible about this correction is that the cities which lie below the trendline in the chart—those which have fallen by more than you’d expect based on their prior appreciation—are the ones where real estate prices had become the most stretched compared to local incomes, according to analysis by Redfin. These “unaffordable” metros are represented by the yellow dots. Readers have asked me how they can support my work. You are already supporting me by reading this far, but if you’d like to do more, please consider forwarding this email to your friends, family, and/or colleagues, and following me on instagram and twitter. You can also financially support my coffee and croissant addiction by becoming a paying subscriber. Thanks! |
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