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US Property Market: 2022 Update

23.06.2022 | 6 min read | Written by Johannes Heinrich

What’s the state of the US Property Market in 2022?

Homeownership is deeply embedded in the culture of the United States. In 2008, the real estate bubble in the US burst and with it the dreams of many Americans. However, in 2022, there are increasing signs that there could be another crisis in the US real estate market. In this article, we take a look at current trends and the background to this development.

Property Market in the USA: 2022 update, featuring an image of a US flag.

Update mid-2022

In the United States, property prices rose enormously during the pandemic. Mortgage interest rates and property prices in the land of opportunity rose more sharply than at any time in the last four decades. In many places, the dream of owning a home is becoming a distant prospect for the middle class. The median value for single-family homes rose by almost 16 per cent compared to spring 2021, and mortgage rates have also risen since the end of 2021, from 3.1 per cent to 5.1 per cent in May 2022.

Under these circumstances, it is not surprising that some people are thinking back to the years 2007/08, when the US real estate bubble burst. However, the current situation is hardly comparable to the crisis back then. Loans are becoming more expensive in the USA and buying property on credit now accounts for a much smaller share than back then. The rising prices are a global phenomenon, triggered by the economic policy during the pandemic. The development of real estate prices in the USA is worrying. However, there can be no talk of an American real estate bubble in mid-2022.

Looking to the past

If one wants to understand the American real estate crisis of 2008, one must first go back a little further into the past: In the 1990s, real estate in the USA increasingly became objects of speculation – not just for companies, but also for private individuals. People bought old houses cheaply, renovated and then sold them on at a high profit. This “house flipping” caused real estate prices to grow steadily upwards. When the dot-com bubble burst on the US stock markets at the end of the 1990s, this trend was further fueled.

With the stock market crash, the reputation of buildings as a safe investment rose, which is why more money flowed into the real estate sector. Then there was the FED. In response to the threat of recession after the stock market crash, the US Federal Reserve lowered the key interest rate from 6.5% to 1% to get the economy moving again. The interest rate cut had a positive effect on property prices. Banks now lent cheap money to home buyers. However, many of them had poor credit ratings. This credit risk was outsourced by the banks to third parties through financial constructs.

When interest rates rose again in the following years, weak borrowers could no longer pay their debts. From 2006 onwards, this set off a chain reaction. Debtors were forced to throw their overvalued houses on the market at rock-bottom prices. The housing bubble in the US burst as the crisis drove more and more homeowners to ruin and prices to fall.

Cheap money drives property prices higher in the US

What was intended as a short-term measure to support the economy after the turn of the millennium has now become the norm. Since the crisis of 2008, the US Federal Reserve has been supplying the financial markets with cheap money. The low key US interest rate drove investors into the US real estate market again in search of returns, which caused prices to rise. Around a decade after the crisis, the real estate market in the US is starting to soar again. In 2019, the nominal house price index in the United States was 40% above the 2009 low and has surpassed the 2006 peak (just before the outbreak of the crisis).

This is reflected in the price development of real estate in various US cities. The following is based on data from Zillow, a company that analyses data from millions of properties in the US. According to Zillow, different developments can be observed in the sales prices of real estate in the United States:

  • In the major cities (more than 1 million inhabitants), there’s more of a mixed picture. In New York, Phoenix, San Jose and Los Angeles, average property sales prices have more than doubled since 2009. Meanwhile, in Memphis, Chicago and Philadelphia, real estate has increased by more than a third. Only in the Texas metropolises of Dallas and San Antonio did prices stagnate.
  • Second- and third-tier cities (less than 1 million inhabitants) experienced almost continuous strong growth. Denver, Miami, Nashville and Fresno recorded average price increases of up to 100%.
  • Cities in the vicinity of economically important metropolitan areas registered the strongest increases in property prices. For example, Hialeah, north of Miami, has seen prices rise by more than 200% since 2009. In Oakland, located in the San Francisco Bay area, property values even increased more than fourfold.
  • On average, the sales prices of properties in the 100 largest cities in the country increased by 60% over the last 10 years.

These developments are raising concerns among an increasing number of analysts that another housing bubble is in the making in the US.

Geographical differences in US real estate prices

While real estate prices are rising massively in the United States in 2022, the values differ greatly from region to region. In many major cities, the increases are far above the national average. Price increases are particularly substantial in:

  • Los Angeles
  • Washington, DC
  • Boston
  • Las Vegas
  • Miami

In areas that are less popular due to their remote location, social problems or the weak labour market, we see property prices stagnating in 2022. Examples of this are:

  • Detroit
  • Toledo
  • Rochester
  • Springfield, MA
  • Tulsa

US Property Market 2022: Reasons for optimism

The current situation differs from the last real estate bubble in several respects. For one thing, we don’t currently expect an increase in the key interest rate. Quite the opposite, in fact. The inflow of money into the US real estate market will thus continue, making a crash like ten years ago less likely. Moreover, according to analyses by the US bank J.P. Morgan, unlike in the mid-2000s, there are now only a few cities in the US where property prices are rising at the same time as the supply of new houses and flats is growing. Accordingly, the real estate market is overheated in only a few regions, such as New York or the San Francisco Bay Area.

Another argument for a continued positive trend: with Millennials, a large population group is reaching the age to buy houses and flats. The expectation of many observers is that demand for real estate will rise again as a result. Whether this will happen, however, depends heavily on the availability of affordable housing. And this is currently relatively rare, especially in the lower price segment, as project developers have focused heavily on the luxury segment in recent years.

PlanRadar: helping property investors get the most out of their investments

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