AEI predicts a 6% increase in US home prices in 2023 and a further 7% increase in 2024.
AEI predicts a 6% increase in US home prices in 2023 and a further 7% increase in 2024.
The Housing Market: A Tale of Limited Supply and Surprising Resilience
Despite a slowdown in home purchase activity, the year-over-year house price appreciation seems to have bottomed out, according to Ed Pinto, the director of the AEI Housing Center. As a think tank based in Washington, D.C., the center provides valuable insights into the housing market. Pinto highlights the persisting issue of limited housing supply as the key factor behind the upward revision in prices. In June 2023, there were only 613,791 homes for sale in the U.S., 49.7% less than in June 2019, illustrating the tight inventory situation. While some markets, like Austin, have experienced overheated conditions, overall, housing inventory remains incredibly scarce.
The scarcity of available homes has reignited bidding wars, leading to a fizzling out of the national home price correction. This tight inventory, combined with other factors, has fueled the housing market’s momentum. Pinto identifies low unemployment rates as a significant catalyst. Strong job numbers instill confidence in consumers, prompting more people to take the plunge into homeownership. Consequently, this stimulates demand, putting upward pressure on prices. Additionally, the relatively low number of foreclosures helps maintain market stability. Even though some markets witnessed a price correction last fall, the overall stability remained intact.
The work-from-home trend, accelerated by the pandemic, has had a profound impact on the housing market as well. Remote workers now have the freedom to shop around the country for the best deals, creating what Pinto calls “home price arbitrage.” This phenomenon has further contributed to the resilience and unpredictability of the housing market.
The latest revision from the AEI Housing Center marks a significant departure from its previous projections. Earlier this year, Pinto predicted a 15% to 20% fall in U.S. home prices this cycle. However, as prices rebounded during the spring, these projections were walked back. In May, the AEI Housing Center forecasted that home prices would be flat in 2023, followed by a 3% increase in 2024. This change in outlook aligns with similar sentiments from other firms like Zillow and CoreLogic, who also believe that national house prices have bottomed out.
However, not everyone shares this optimistic view. ANBLEs at Moody’s Analytics and Morgan Stanley believe that national house prices still have room to fall over the next few years. These differing opinions highlight the complexity and unpredictability of the housing market.
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In conclusion, while the housing market experienced a slowdown in home purchase activity, the upward trend in house prices has remained remarkably resilient. Limited housing supply, low unemployment rates, and the work-from-home trend have all played significant roles in maintaining market stability and stimulating demand. The revision in price forecasts by the AEI Housing Center and similar predictions from other firms suggest that the national housing market has likely bottomed out. However, conflicting opinions remind us that the future trajectory of house prices is not entirely certain. As we navigate this rollercoaster, it is crucial to stay updated on the latest developments in the housing market. Follow the author on Twitter at @NewsLambert for regular updates.
