A small house model, and three different-height piles of coins

U.S. home prices (single and multi-family homes) have been surging for the past few years. The trend started years before the pandemic. However, the pandemic super-charged the phenomena caused by the lockdown forcing the population (the portion able to work from home) to save unprecedented amounts of money which couldn’t be spent due to shortages. The shortages were caused by (a) the pandemic and (b) retailers lacking the infrastructure to meet the unexpected surge in demand.

Home Prices: The Surge

Home prices have been steadily rising since the 2008 Financial Crash. That crash was caused by speculation and over-investment in the U.S. real estate market. In the run-up to 2008, home prices were similarly spiking out of control. However, unlike in 2008, the recent surge in home prices isn’t driven by speculation and investment but by pent-up demand and insufficient stock. U.S. consumers could not spend their money as before (on services, restaurants, gyms, etc.) and therefore saved money and spent it on durable consumer goods. Moreover, the economy was turbo-charged by the pandemic stimulus.

The U.S., in general, and Illinois in particular, hasn’t built sufficient housing to meet population increases. The result is that there aren’t enough houses for the buyers, causing a spike in prices.

Home Prices: Possibly Plateauing

According to the National Association of Realtors, for the first time in 36 months, the number of first-time homebuyers stabilized in August. However, the average listing was still only 17 days – unchanged. Wells Fargo expects home prices to continue to stabilize over the next few years as the frenzy related to the pandemic subsides.

Recent data found that home sales dropped 2.0% in August compared to August 2020 for 5.88 million units. Sales fell in all four regions of the U.S. However, while prices were down in August, the overall movement of homes was up 16% in 2021 compared to 2020. The housing surge boomed in early 2021 as families moved out of cities and into smaller towns and suburbs. Economists expect demand to continue unabated as low mortgage interest rates are driving demand.

However, the Federal Reserve took the first tentative steps to allow interest rates to rise earlier this year. Therefore, it is expected that the surge in home prices should be reduced in the next few years as demand falls off.