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The median house price in Silicon Valley has exceeded 2 million US dollars. Will

2024-08-02

In the just-concluded second quarter, US housing prices hit a new record high, with the median house price in Silicon Valley breaking through the 2 million US dollar mark. The National Association of Realtors (NAR) stated that according to data dating back to 1979, there has never been a metropolitan area in the US with a median house price exceeding 2 million US dollars.

The latest data released by NAR shows that across the United States, 89% of metropolitan areas experienced an increase in housing prices during the second quarter. During this period, the 30-year fixed mortgage rate varied from 6.82% to 7.22%.

The previously published S&P/Case-Shiller Index also indicated that US housing prices have reached a historical high: in May 2024, the average US housing price increased by 5.9% year-over-year, with the top three cities with the highest growth being New York, San Diego, and Las Vegas. Additionally, all 20 cities covered by the index saw an increase in housing prices.

Chen Yuewu, Executive Partner of Golden Eagle Real Estate Investment Company in the United States, told reporters from First Financial Daily that the data for May showed that the average US housing price has been rising for 16 consecutive months and has set a new historical high for 10 consecutive months.

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"Currently, the inventory of real estate in the United States is equivalent to 3 to 4 months of sales volume, which is far below the equilibrium point of 6 months," he explained. "Federal Reserve Chairman Powell admitted in congressional testimony in early March that there is a severe shortage of residential real estate supply in the United States. Major US authorities have estimated the shortage of housing in the country, with Fannie Mae and Freddie Mac both estimating around 4 million units. The supply and demand imbalance in the US real estate market is the fundamental reason for the continuous increase in housing prices."

Where is the increase rapid?

Data from NAR shows that in the second quarter, in California, the price of single-family homes in the San Jose-Sunnyvale-Santa Clara area rose by 11.6% compared to the same period last year, reaching 2.08 million US dollars.

The neighboring San Francisco ranks second among the most expensive metropolitan areas, with the median house price climbing by 8.5% over the past year, reaching approximately 1.45 million US dollars. Seven of the top ten most expensive markets are located in California.

The increase in housing prices in some US cities is astonishing. For example, both Racine, Wisconsin, and Glens Falls, New York, achieved a 19.8% year-over-year increase in housing prices during the second quarter.At the same time, there are also some markets that have experienced rapid growth in the past, where the increase in housing prices has slowed down. For instance, the housing prices in Austin, the capital of Texas, which was once hot, remained flat in the second quarter, while the increase in housing prices in Nashville, the capital of Tennessee, is in line with the national median housing price increase of 4.9%.

The S&P/Case-Shiller Index showed that in the May year-over-year increase among various U.S. cities, New York topped the list with a year-over-year growth rate of 9.4%, followed by San Diego (9.1%), Las Vegas (8.6%), Miami (7.6%), and Los Angeles (7.5%).

It should be noted that the sharp appreciation of housing prices also reflects a broader affordability issue. According to NAR data, nationwide, the annual growth rate of existing single-family home prices in the second quarter was 4.9%, reaching $422,100.

NAR data shows that in 48% of the U.S. markets, an income of at least $100,000 is required to afford a mortgage with a 10% down payment.

NAR's Chief Economist, Lawrence Yun, commented, "This is good news for homeowners who have made progress in wealth growth. However, it is difficult for those who want to buy a house, as the required income to qualify has roughly doubled compared to a few years ago."

Currently, according to calculations, the median monthly mortgage payment in the United States is $2,262, which is about an 11% increase from the first quarter. Compared to the 24.2% in the previous three months, households typically spend 26.5% of their income on mortgage payments in the second quarter.

At the beginning of August, the Federal Reserve Bank of New York released a report on household debt and credit for the second quarter of 2024. The report stated that total U.S. household debt increased by $109 billion, reaching a record level of $17.80 trillion. Of this, mortgage balances increased by $77 billion, reaching $12.52 trillion.

Continue to rise?

Data released by the U.S. Department of Labor shows that the U.S. Consumer Price Index (CPI) rose by 0.2% month-on-month in July 2024, with the inflation rate dropping to 2.9%, the lowest level since March 2021 and in line with market expectations, which makes the Federal Reserve's plan to cut interest rates in September more feasible.

Previously, at the end of July, the Fed announced that it would maintain the target range for the federal funds rate at 5.25% to 5.5%, the highest level since January 2001. The Federal Reserve stated that some progress has been made in easing inflation in recent months, but inflation remains at a relatively high level.Professor Hu Jie, a practicing professor at Shanghai Advanced Institute of Finance at Shanghai Jiao Tong University, previously stated in an interview with First Financial Daily that the Federal Reserve does not overly concern itself with asset prices, especially those in the financial markets. In contrast, real estate prices may attract more attention.

He explained that, under normal circumstances, when considering whether to lower interest rates, the Federal Reserve focuses on three main indicators: the inflation rate, the unemployment rate, and the economic growth rate.

"The inflation rate has dropped to 2.9%, essentially reaching the Federal Reserve's target, while the U.S. unemployment rate has risen significantly, exceeding expectations. Powell has strongly hinted at the start of interest rate cuts in September," Chen Yuewu told First Financial Daily, noting that the market's expectation for the Federal Reserve's interest rate cut in 2024 has increased from 0.5% to 0.75%.

He also pointed out that "within a two-week period, the U.S. 30-year mortgage rate has significantly dropped from 7% to around 6.5%. This is a significant positive for the U.S. real estate market."

He predicted that after the Federal Reserve begins the interest rate cut cycle as expected by the market, mortgage rates will enter a downward channel, continuing to decline significantly. "Demand for real estate will thus be greatly released, and we predict that the increase in housing prices will accelerate again, with the growth rate returning from the current 6% to over 10%."

A recent report from the Oxford Economics Institute found that the real estate markets in developed economies seemed to have relatively safely avoided the last bubble deflation, with all major housing market prices higher than pre-pandemic levels.

The research by the Oxford Economics Institute found that although the price-to-income ratios are now close to the levels before the 2008 financial crisis, the price-to-rent ratios are still much higher than pre-pandemic levels. This may indicate that even if housing prices do not fully retreat, there is still room for moderation, but it also warns that rents may continue to rise faster than usual, exacerbating the problem of slow deceleration in service sector inflation.

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