Real Estate Prices Continue to Rise Despite High Interest Rates

May, 2024 real estate price increases are more than double the inflation rate

At this point, it’s crystal clear that the Fed more than tripling their discount rate over the last two plus years has done little more than slow down the increase in housing prices. Freddie Mac released its May, 2024 National Home Price Index which shows housing prices have increase 5.9 percent year-over-year.

As you can see from this graph provided by Calculated Risk, on a year-over-year basis, housing prices never went negative even for a month since the Fed started increasing rates in mid-2022. (In fact, they haven’t gone negative since shortly after the Great Recession in 2010.)

5.9 percent is more than double the May inflation rate of 2.6 percent. (Although, admittedly, I believe the CPI generally understates inflation, but that’s another story.)

Given where prices and interest rates are, it shouldn’t be surprising that in 2023, US homes were the least affordable on record. As Barrons notes,

“In 2023, someone making the median U.S. income—$78,642—would’ve had to spend 41.4% of their earnings on monthly housing costs if they had bought a $408,806 house, the nation’s median home price, according to a report from Redfin on Thursday. That’s the highest percentage since 2012, when Redfin began tracking the data, and up from last year’s 38.7%.”

It’s hard to see how 2024 won’t be even worse. And indeed, this problem is likely to continue for the foreseeable future until the housing shortage is addressed… something which unfortunately doesn’t appear to be on the horizon.

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