From a small northwestern observatory…

If there’s a recession, why are home prices still going up? That was the focus of an article last week by Anna Bahney form CNN Business titled “Home Prices Hit a New Record Because There Simply Aren’t Enough Houses for the Crush of Buyers.”

Two things she does not mention. First, this recession is nothing like the last one. Indeed, the last recession was deepened in no small part because because of the surplus of foreclosed homes. (Yes, there were a LOT of other reasons, and we can go into that later.) Second, our studies at Greenfield indicate that since WW-II, home prices generally do not fall during recessions (the last one being the exception). However, this recession is odd in that it is not being felt evenly throughout the economy. The bottom tier of workers — who are most likely to be renters — are suffering disproportionally. At the middle of the economy and above — the folks who are likely to be homebuyers — the recession hasn’t hurt quite as badly. Coupled with that, there is a very real material and labor cost problem.

Not surprisingly, according to Ms. Bahney’s article, the median price of a home in March in the U.S. hit $329,100, up 17.2% from a year ago. The inventory of homes for sale is down 28.2% from a year ago. Worse still, the inventory of homes for sale between $100,000 and $250,000 is down 36.6%.

According to Lawrence Yun, chief economist for the National Association of Realtors, this is resulting in a widening gap between haves and have nots. “You will have homeowners gaining wealth and renters missing out,” he said. He used San Francisco a few years ago as an example. If one middle income household purchase a home a few years ago, and the other did not, the first household are now millionaires. Yun calls this rapid price appreciation an “arbitrary outcome” for family wealth.

Anecdotal evidence suggest something of a flight from urban areas to the suburbs, somewhat as a reaction to COVID and a need for space to work from home and home-school. Since owner-occupied residences are more likely in the suburbs, this suggests an increasing demand, and no real end to the price crunch in sight.