Why Are Home Prices So Expensive Right Now?

Why Are Home Prices So Expensive Right Now?

Matthew Frankel, CFP®, And Jason Hall, both contributors to The Motley Fool, recently asked the question. Their answer is interesting. There’s a housing shortage in the U.S., and home prices seem to keep going higher and higher. In this Fool Live video clip, Matt Frankel and Jason Hall discuss the current state of the U.S. housing market; why are home prices so expensive right now? Additionally, what investors need to know about housing. 

Why Are Home Prices So Expensive Right Now?

The two cite the inventory of existing homes has fallen to the lowest level since record-keeping began: 920,000. A regular healthy market has an inventory of about 2,000,000 houses for sale or approximately six months of inventory.

Second, the Median home price in the United States is well over $350,000. It passed $360,000 briefly last year. “We’ve seen home prices year over year go up, well, like 130 straight quarter months, something like that. Like 11 or 12 years every month.”

Third, a lot of people are just hesitant to sell right now. Yes, home values have risen, many people have tapped into their home equity, the COVID pandemic is still alive, and well, they don’t want people in and out of their homes doing showings.

Fourth, low mortgage rates have made it more affordable. If mortgage rates are at 3%, your monthly payment on the same price home is about 12% less than if it were 4%.

Fifth, the millennial generation is reaching their prime household-forming years, which has created a lot of demand that wasn’t there a few years ago. The peak is half a dozen years away.

Sixth, the number of single-family rental homes in America has gone from about 11 million in 2005 to about 16 million now. The number of single-family homes that are rented out is increasingly becoming institutionally owned.

Finally, home building capacity is used for “build-for-rent homes.” One company’s backlog is up 146% over the past year. They have roughly six quarters, a year-and-a-half’s worth of homes that they’ve sold but haven’t built yet. 

Freddie Mac, who is leading the U.S housing market forward, making homeownership and rental housing more accessible and affordable nationwide, says, “The United States suffers from a severe housing shortage. In a recent study, The Major Challenge of Inadequate U.S. Housing Supply, we estimated that 2.5 million additional housing units would be needed to make up for this shortage.”


Years of underbuilding have created a large deficit, particularly for states with strong economies that have attracted many people from other states. Further exacerbating the issue of undersupply will be Millennials and younger generations entering the housing markets.

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