Reasons Bay Area Real Estate Prices Continue to Rise

I’ve been a long-time, on-and-off-again reader of The Economist. I really enjoy the wide variety articles they publish, with stories from around the world – including our little corner here in North America.

They recently came out with an insightful article about how and why real estate markets in the United States, Australia, and parts of Europe have shrugged off these higher interest rates. If you subscribe to The Economist, you can read the article here.

Here are some key points:

Rising Prices: A global house-price index (excluding China) increased by over 3% year on year as of April. In the U.S., house prices have surged by 6.5% compared to last year, with notable increases also seen in Australia (+5%) and Portugal.

Resilience Despite High Rates: Despite substantial interest rate hikes since 2021, house prices in nominal terms have barely fallen. In real terms, adjusted for inflation, global house prices are down only 6% from their peak, maintaining alignment with pre-pandemic trends.

Market Stability: Mortgage delinquency rates remain low, especially in the U.S., where the rate is at a historic low of 1.7%. Other regions, including New Zealand and the Eurozone, are experiencing similar stability.

Here are the factors which are seen as driving these still-buoyant prices:

Immigration: A surge in immigration has increased demand for housing, contributing to price rises.

Sacrifices by Homeowners: Many homeowners are adjusting their expenditures and extending mortgage terms to manage higher costs.

Economic Strength: Strong labor markets and wage growth have provided additional support to homeowners, mitigating the impact of higher mortgage rates.

In a nutshell, The Economist’s outlook is that given falling inflation and strong wage growth, house prices are expected to continue rising. Some central banks have started to lower interest rates, which will further support the housing market.

These trends suggest a robust housing market despite economic pressures, providing potential opportunities for investment and homeownership.

Will home prices keep rising throughout the rest of 2024, and into 2025? It seems they very well may. Stranger things have happened, after all.