“Home Prices Soar to Record Heights,” shouts the Wall Street Journal headline. “The median existing‐home sales price in May topped $350,000 for the first time,” the writer notes, citing the National Association of Realtors (NAR) and adding “the figure was nearly 24% higher than a year ago.”
Most of the economy was locked down a year ago, of course, so few Americans were eager to leave their existing homes or make offers for other homes. With pandemic panic largely behind us, and household savings piling up, many people are eager to trade up to a better home – including those relocating away from troubled cities and/or overtaxed states. As the Journal writes, “Sales prices have been climbing sharply since last summer when lockdowns related to the Covid‐19 pandemic eased across the country and many people rushed to find more space and bigger homes.”
Rushing to move into bigger homes does not mean prices rose 24% for the same homes. It means more sales of larger and more expensive homes this year are being wrongly compared with more sales of smaller and cheaper homes a year ago. Many people rushing “to find more space” looks more like rising living standards than an inflation squeeze on real incomes.
Federal Housing Finance Agency (FHFA) price indexes, based on repeat sales or refinancing of the same homes, show first quarter home prices up about 12–14% from a year earlier in the biggest states but only 7–8% in several smaller states. Buyers of existing homes are usually sellers of another home, so unusually tight sellers’ markets in places like Utah raises both their buying and selling prices (unless they are relocating to such hot spots from an unpopular city or state).
The median selling price of existing homes does not tell us what happened to the price of “typical” homes, because typical homes bought in the severe economic crisis of April and May 2020 were inferior to the homes people are rushing to buy today. Zillow estimates “the typical home value” is $287,148, which “only includes the middle price tier of homes.” That average price among mid‐priced homes has risen 13.2% from the COVID‐depressed levels of a year ago. But neither the Zillow estimates nor those of the FHFA are anywhere near that misleading 24% headline figure.
Commentary by Alan Reynolds. Originally published at Cato At Liberty. https://www.cato.org/blog/inflated-news-about-home-prices-1