The median U.S. home price just passed $400,000 for the first time ever, according to data from the St. Louis Federal Reserve.
In the third quarter the median home price hit $404,700, jumping nearly 13% since third quarter of 2020, when the median sales price was $358,700.
Though it’s an eye-catching number, the market has been hot of late, and a lack of inventory and high demand means foretold the rise in home prices.
According to a recent note from Goldman Sachs, home prices could rise another 16% by the end of next year. Goldman economist Jan Hatzius pointed out that of all the pandemic shortages, the housing shortage might last the longest and that a crash is very unlikely.
Home prices driven up by a housing shortage
The pandemic has seen low mortgage rates, a flight of people from urban areas to the suburbs, as well as younger workers buying their first houses.
According to the latest forecast by Fannie Mae, median home prices are expected to rise another 7.9% between Q4 2021 and Q4 2022.
A recent note from Morgan Stanley showed that the country needs as many as 1.5 million homes to get back to normal and that the pace of real estate availability is three years behind.
“The housing shortage has contributed meaningfully to the record pace of home price appreciation we are currently experiencing,” Morgan Stanley strategists wrote in August. “While the magnitude of the shortage described above means it is unlikely that we will find ourselves with an excess of supply at any point in the near future, the pace at which supply is contracting has slowed.”
Other things are making the housing market harder to predict. Morgan Stanley pointed out that an increasing number of older Americans are choosing to age at home just as millennials are looking for houses. Those demographic developments are happening while the pandemic has led to building material shortages and supply chain bottlenecks.
While nothing appears poised to change meaningfully for the market to cool off — yet — Goldman Sachs’s note said potential zoning changes in certain pinched areas might allow more multi-family units to emerge to provide more supply. But, of course, those changes take time.
As Upwork economist Adam Ozimek noted on Twitter of the new normal: “$400k homes, $40k cars, smh.”
Correction 10/28: A previous version of this post reported the year-over-year growth near 20%. It is near 13%.