What's going on?
Home prices in the US hit a record high in September (according to influential data) – that means average prices have finally eclipsed the level last seen in 2006!
What does this mean?
According to different data from Zillow, there were 6% fewer homes for sale in the US in October than a year ago. Meanwhile, the strongest wage gains seen since the 2008 financial crisis and other factors, like persistently low interest rates (which cause mortgage rates to be low), have helped spur demand for homes. High demand and limited supply is a good recipe for higher prices (although it’s worth noting that mortgage rates went up notably in November as interest rates in the market went higher).
Why should I care?
For you personally: Inflation is typically positive for home prices.
Inflation erodes the value of money over time (e.g. a few years from now, $1 can’t buy what it buys today). Something physical, like a home, is more likely to increase in value, at least, in line with inflation because it’s something that has tangible value – rather than simple cash or a bond (that pays its owner a cash return), which are tied directly to the value of money. While nothing is guaranteed, if inflation does pick up (in the US and elsewhere, like Britain), it’s probably a positive factor for house prices in affected countries.
For markets: A strong housing market tends to support consumer spending.
People who have a home that has gone up in value can borrow more money in the form of a bigger mortgage (a.k.a. re-mortgage) – and then spend that money. Also, generally speaking, people are more comfortable spending money on their home when it goes up in value, which is why home improvement retailers like Home Depot tend to do better when home prices are going up.