Where Are Home Prices Going?
Since 1891, the value of the average home in the United States has grown at a rate of about +3.1%/year (source: Case-Shiller & The Bureau of Labor Statistics).
- That’s a little less than bonds (+5.1%/year)
- And noticeably less than large cap stocks (+10.2%/year)
(source: Ibbotson)
Some years have been boom years in home prices:
1894 +17%
1946 +24%
2021 +19%
And some years have been busts in home prices:
1896 -13%
1901 -16%
1932 -10%
2007 -5%
2008 -12%
2009 -4%
2010 -4%
2011 -4%
Where does our team think home prices go from here? Well, housing prices have declined about -1.7% over the last 12 months (source: Case-Shiller). But they likely have further to fall. The odds of a crash in housing prices are tiny. It is more likely we see modest price declines over the next few years.
Why? Because historically, US house prices and rents have tended to correlate closely. But over the last few years, house prices and rents have decoupled bigtime…
Something has to give. Either:
- House prices need to go down
- Rents need to go up
- Or a combination of the two
The spread between the two is almost certainly not going to be closed solely by rents going up, because rents would have to go up A LOT (which would bleed through to inflation, and then cause interest rates to go up even more, which would eventually crush home prices). The gap between home prices and rents will eventually close, and it will almost certainly close by home prices coming down.
Authors: Keith Wagner & Rick Wagner
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