US Cities With Surging Home Prices

US home sales have been constrained by high prices and mortgage rates that have surged to nearly 7%. To make the matter more complex, current homeowners with 3% mortgage rates they got a few years ago don’t want to sell their homes and buy another with more expensive monthly mortgage payments. It is almost a perfect circle that keeps the inventory low. For the modest number of homes sold in the four weeks that ended on December 22, median prices rose 6% to $383,725 year over year. According to real estate company Redfin, home prices rose significantly over the same period in some metros.

According to the St. Louis Fed, the rate on a 30-year fixed mortgage fell to 2.67% in December 2020. This was mainly due to efforts by the Federal Reserve to help the economy. As the Fed began to raise rates, the interest on a 30-year fixed mortgage rose to 7.76% in November last year. Currently, the rate is 6.85%. The National Association of Home Builders calculated that the monthly payment on a $450,700 home on a 30-year fixed mortgage at slightly more than 3% was $1,925. At slightly more than 7%, the figure payment is $2,923. No wonder so many buyers have stayed out of the market.

Real estate firm Redfin looked at home prices, inventory, and the number of days homes are on the market across their database of 400 metros. They focused on the 50 largest based on population to calculate home price changes.

The city with the largest increase in median home sales price year over year for the four weeks that ended December 22 was Philadelphia at 15.1%. Milwaukee followed it at 14.3%. The next highest was Cleveland at 13.3%, Nassau County at 12%, and Warren MI at 11.3%. Three cities are fairly poor–Milwaukee, Cleveland, and Warren.

Redfin conducted another study that confirmed significant price changes. It is based on its home price index year over year in November. Figures from this confirm the first study. Prices in the five cities were up by double digits.

Oddly, the Redfin study does not cover precisely why some markets have prices growing faster than others. It shows which markets value home buyers may want to avoid if they can.