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In the just-concluded second quarter, U.S. housing prices hit a new high, with the median house price in Silicon Valley exceeding $2 million.

The National Association of Realtors (NAR) said data from its database going back to 1979 shows that no metropolitan area in the U.S. has ever had a median home price above $2 million.

The latest data released by NAR shows that across the country, 89% of metropolitan areas saw rising home prices in the second quarter. During this period, 30-year fixed mortgage rates ranged from 6.82% to 7.22%.

The S&P Case-Shiller Index released earlier also showed that U.S. house prices hit a new record high: the average U.S. house price increased by 5.9% year-on-year in May 2024. The three U.S. cities with the highest increases were New York, San Diego and Las Vegas. At the same time, house prices in all 20 cities covered by the index were rising.

Chen Yuewu, executive partner of American Golden Eagle Real Estate Investment Company, told the First Financial reporter:Data from May showed that average U.S. home prices had risen for 16 consecutive months and hit record highs for 10 consecutive months.

"The current housing inventory in the United States is 3 to 4 months of sales, far below the 6-month balance point." He explained, "Fed Chairman Powell admitted in a congressional inquiry in early March that the supply of residential real estate in the United States is seriously insufficient. Major authoritative institutions in the United States have given estimates of the shortage of housing in the United States, with Fannie Mae and Freddie Mac both estimating it to be around 4 million units. The short supply of the U.S. real estate market is the fundamental reason for the continued rise in housing prices."

Where is the fastest growth?

In California, the price of a single-family home in the San Jose-Sunnyvale-Santa Clara area rose 11.6% to $2.08 million in the second quarter from a year earlier, according to NAR.

Neighboring San Francisco ranked second among the most expensive metropolitan areas, with the median home price climbing 8.5% over the past year to about $1.45 million. Seven of the top 10 priciest markets are in California.

Home price increases in some U.S. cities are astonishing. For example, Racine, Wisconsin, and Glens Falls, New York, both saw year-over-year home price increases of 19.8% in the second quarter.

Meanwhile, some once-fast-growing markets have seen their home price growth slow. For example, home prices in Austin, Texas, which was once hot, were flat in the second quarter, while home prices in Nashville, Tennessee, rose in line with the national median price increase of 4.9%.

Among the year-on-year increases in U.S. cities in May, as shown by the S&P Case-Shiller Index, New York topped the list with a year-on-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’s important to note that the sharp appreciation in home values ​​also reflects broader affordability issues: Nationally, the annual price growth for existing one-family homes was 4.9% in the second quarter, to $422,100, according to NAR data.

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

“This is good news for homeowners who have made progress in their wealth growth,” said Lawrence Yun, NAR’s chief economist. “However, it is difficult for those who want to buy a home because the income required to qualify has roughly doubled compared to a few years ago.”

Currently, the median monthly mortgage payment in the U.S. is estimated to be $2,262 per month, up about 11% from the first quarter. In the second quarter, households typically spent 26.5% of their income on mortgage payments, compared with 24.2% in the first three months.

In early August, the Federal Reserve Bank of New York released a report on household debt and credit in the second quarter of 2024. The report said that total household debt in the United States increased by $109 billion to a record level of $17.80 trillion. Among them, mortgage balances increased by $77 billion to $12.52 trillion.

Continue to rise?

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

Earlier, the Fed announced at the end of July that it would maintain the target interest rate range of 5.25% to 5.5%, the highest level since January 2001. The Fed said that some progress has been made in easing inflation in recent months, but inflation is still at a high level.

Hu Jie, professor of practice at Shanghai Advanced Institute of Finance, Shanghai Jiao Tong University, said in an interview with Yicai Global that the Fed would not pay too much attention to asset prices, especially asset prices in the financial market. In contrast, real estate prices may attract more attention.

He explained that generally, when considering whether to cut interest rates, the three main indicators the Federal Reserve focuses on are inflation rate, unemployment rate and economic growth rate.

"The inflation rate has dropped to 2.9%, basically achieving the Fed's target, while the U.S. unemployment rate has risen significantly, exceeding expectations. Powell has strongly hinted that interest rate cuts will begin in September." Chen Yuewu told the first financial reporter that the market's expectations for the Fed's interest rate cuts in 2024 have increased from 0.5% to 0.75%.

He also reminded that "in two weeks, the 30-year mortgage rate in the United States has dropped significantly from 7% to around 6.5%. This is a major positive for the US real estate market."

He predicted that after the Federal Reserve starts the interest rate cut cycle as expected by the market, mortgage rates will enter a downward channel and continue to fall sharply. "The demand for real estate will be greatly released, and we predict that house price increases will accelerate again, and the growth rate will return to more than 10% from the current 6%."

Real estate markets in advanced economies appear to have escaped the last bubble deflation relatively unscathed, with prices in all major housing markets higher than before the pandemic, Oxford Economics found in a recent report.

Research by the Oxford Economics Institute found that although the current price-to-income ratios are close to the levels before the 2008 financial crisis, the price-to-rent ratios are still much higher than the pre-epidemic levels. This may indicate that even if house prices will not fall completely, there is still room for easing. However, it also warns that rents may continue to rise at a faster rate than usual, thereby exacerbating the problem of a slow decline in service industry inflation.