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U.S. Median-Home-Price Rises Are Double the Inflation Rate

Median U.S. home-price rises continue to sharply exceed the nation’s inflation rate.

It’s no secret that U.S. home prices are sky-high, but new data show that increases in median sale prices of residential property are way ahead of the nation’s already high inflation rate.

The annual inflation rate through June was 9.1%.

According to Clever, a real estate data company, the increase in the median sale price per square foot of new single-family homes has significantly outpaced overall inflation since 2020.

Overall, the median sale price of new single-family homes has increased 515% since 1980, Clever notes in its report. 

“In 2021, the median sale price was $397,100, compared to 1980's $64,600. The rise in the median sale price has exceeded the rise in median square footage by 928% since 1980.”

Now, with the median sale price per square foot exceeding overall inflation by 139% in the past two years, housing prices “have really jumped since the pandemic started, which these numbers confirm,” the report noted.

Some regional home prices, as measured by Clever, are really out of whack.

For example, the U.S. city with the highest price per square foot is San Jose, with a median price of $801. 

Additionally, California holds the top four most expensive cities based on price per square foot: San Jose, San Francisco, Los Angeles, and San Diego.

Correspondingly, Memphis is the least expensive city based on price per square foot at just $92. It also has the largest median square footage in the country, at 2,630, Clever reported.

Years in the Making

Home prices are in orbit for well-documented reasons, but real estate gurus say those prices have been affected by events that took place years ago.

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“Home prices continue to increase due to the extremely tight supply conditions in the housing market,” said Abbey Omodunbi, senior economist at PNC Financial Services Group. 

“The Great Recession was caused by an oversupply in the housing market but supply has remained very slow since the end of the Great Recession. Strong demand for housing during the pandemic exacerbated longstanding supply challenges, and this continues to drive house-price growth.”

But a 139% pricing boom over the inflation rate is actually years in the making.

“There are three primary reasons why home prices have outpaced inflation,” said David Meyer, host of the popular "On the Market" podcast, which tracks the real estate market. “First, there’s a shortage of housing supply in the United States estimated to be as high as seven million units.”

Secondly, low interest rates inflate asset prices, and the U.S. has been in a low-rate environment for more than a decade. 

“Even with recent rate hikes, interest rates are still relatively low in a historical context,” Meyer said. “Lastly, demographic trends support sustained demand for housing as millennials, the largest generation in the country, reach peak family formation and home-buying years.”

Currently, higher interest rates and declining affordability are cooling the housing market, but prices are still up double digits year-over-year due to the incredibly low number of homes on the market.

“According to Redfin, seasonally adjusted inventory in June 2022 was 913,000 homes,” Meyer said. “Prepandemic I would expect inventory levels to be above 1.6 million homes over the summer months. With such low inventory, the market can withstand a good amount of declining demand without significant price declines.”

Get in Now?

For anyone who plans to stay in their home for at least two years, now is a good time to consider buying, Meyer noted.

“Mortgage rates have come down off their June peak, and current rates could be the lowest we see for months or even years to come,” he said. 

“Additionally, the housing market has shown a lot of resilience so far this year, and although I expect some regional markets to see price declines, many markets could be poised for future growth.”

“Basically, even though affordability is low right now, it could be even lower in six months to a year depending on what part of the country you're in,” Meyer added.