Even after reaching all-time high average prices and sales numbers not seen since the height of the 2000s boom, the housing market still has lots of room to run, experts say.
What's happening: There were fears in late 2019 and early this year that price levels had outpaced income growth and become unsustainable — but record-low mortgage rates and promises by the Fed to keep U.S. interest rates at zero through at least 2023 have lit a new fire under the market.
Where it stands: Home prices rose 4.8% nationally in July, according to the latest Case-Shiller Home Price Index.
- Existing home prices hit a record high average of $310,600, up 11.4% year over year, and the overall U.S. home price average was a record $319,178 in August, a 13% gain over 2019.
- New homes sales broke the 1 million mark for the first time since 2006 last month, rising 43.2% from last year and up 4.8% from July.
“Weekly home price data show that sellers are raising asking prices at a double-digit pace, and surprisingly, eager buyers are willing to give them what they’re looking for,” says Danielle Hale, chief economist for Realtor.com.
The big picture: It's not just low rates. There are a few big factors that could buoy the housing market for years to come, says Jonathan Woloshin, head of U.S. real estate at UBS Global Wealth Management.
- Older millennials, a historically large generation, are reaching their late 30s — an important marker, as there has been a persistent 20-percentage point gap between the percentage of homeowners under 35 and those 35–44.
- Homebuilders have been slow to erect new housing since the global financial crisis, limiting supply.
And yes, "COVID put some extra juice in the market," Woloshin tells Axios.
- But what's really driving things is a new "migration" out of major population hubs like New York and San Francisco and into lower-cost suburban areas and smaller, more affordable cities like Phoenix, Salt Lake City, Las Vegas and Boise, he says.
The bottom line: Even though prices have risen, the record-low mortgage rates have brought down the monthly bill new buyers will see in many cases, Tendayi Kapfidze, chief economist at LendingTree, tells Axios.
- And that could fall even further if demand starts to wane or as mortgage servicers ramp up hiring, bringing down the spread between mortgage rates and U.S. interest rates, he says.
- "Is this sustainable? I think as long as interest rates remain low you can continue to capitalize on those low interest rates at these high prices."