We are currently living in a rebounding economy fueled with sonic-boom-turbo-charging stimulus. US Monthly Real GDP was a little over $19.4 trillion in February 2020 and dropped dramatically to $16.5 trillion in April 2020. We have now fully recovered, but we must keep growing to improve employment numbers.
The S&P CoreLogic Case-Shiller National Home Price Index, which measures average home prices in major metropolitan areas across the US, rose 13.2% in the year that ended in March 2021 up from a 12% annual rate the prior month. March marked the highest annual rate of price growth since December 2005. The Commerce Department said the median price of a new home sold in April was $372,400, up 20.1% from a year earlier, the strongest annual gain since 1988.
In February 2020, (annualized) over 5.5 million homes sold in the US.....by May that had dropped to 3.91 million.....a drop of almost 30%. In July 2020, existing-home sales in the Northeast were down 5.9% compared to 2019... In the South they were down 12.6%, the MidWest down 10.3% and West down 7.8%. When comparing July 2020 to its PRIOR month June 2020, all of the four regions showed double gains in sales. The Northeast had the largest gain of 30.6% followed by the West with an incline of 30.5%. The Midwest had an increase of 27.5% followed by the South with an upsurge of 19.4%.
In June 2019, the median price for a US home was $285,400......by January 2020, that had dipped 6.7% to $266,300. By July 2020, that price was up 14.75% to $305,600.
Often, the further you fall, the more exaggerated and dramatic the recovery. Not always but as the DOW turns 125 years old today, let's not forget how it was averaging around 29,000 in February 2020, dipped to about 19,000 in March....and yesterday traded over 34,000.....that's up almost 79% in 14 months.....but roughly 17% from its February 2020 high.
Yes, prices of homes are rising at an alarming rate right now. The economy fueled by lots of cheap and 'free' money is providing a sonic boost. But the core drivers of home price escalation include other factors that will not be quickly resolved: rising labor costs due to labor shortages, both skilled labor and cheaper labor, dramatic under-production for over a decade, rising commodity prices due to under-production and ramping up costs (and some price gouging thrown in of course!), rising demand as Mileniall household formation spirals, increased longevity, increased household wealth. The expectations of home prices crashing in the near future may be an unrealistic fantasy.
Will home prices (and all) taper when interest rates rise? Possibly, yet much will depend on whether incomes rise enough to offset this......combined with financial institutions buying up single-family homes and apartments for investment purposes as rents rise and to offset inflation further minimizing supply......combined with building costs unlikely to drop notably.....
We are living in very dramatic times, yet sooner or later everything calms down (hopefully) to a more 'normal' pace.
