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The Insane Rise of Housing Prices!
The FHFA Home Price Index provides valuable insights into the trajectory of home prices over the years. While it’s no secret that prices have surged significantly, it’s important to consider various factors, including inflation. By analyzing the data and graphs, we can gain a clearer understanding of the current state of the housing market and make informed decisions.
The FHFA Home Price Index, dating back to 1990, demonstrates the upward trend of home prices. The blue line represents the raw prices, which naturally show an upward movement. However, the purple line takes inflation into account, providing a more accurate reflection of the higher prices we pay for homes today.
Consider the following: the actual price index currently sits at 190. Although the numerical value may not hold much significance on its own, it’s essential to note that back in 1990, the index started at 100. This means that over the past 33 years, the home price index, adjusted for inflation, has essentially doubled. This stark increase illustrates the considerable rise in home prices over time.
Now, let’s shift our attention to the nominal index represented by the blue line. As of now, the nominal index stands at 395. Starting from the same index value of 100 in 1990, the nominal home pricing index has skyrocketed to a staggering 400 times its initial value. These figures emphasize the undeniable truth that the housing market has spiraled out of control in terms of pricing.
A closer look
Taking a closer look at historical data, we find that in 1990, the average 30-year fixed mortgage rate was approximately 9.5%. Although this rate was higher than today’s rates, it’s crucial to acknowledge that home values were effectively half of what they are now. Consequently, potential buyers often find themselves hesitating on the sidelines, waiting for rates to drop or values to decrease.
However, this cautious approach may not be advantageous for anyone’s financial well-being. With inflation on the rise, purchasing a home today can yield long-term benefits. By buying now, you’ll secure a property at the most expensive point in history. However, as inflation increases, your mortgage payment will likely remain the same or even decrease, while the balance decreases over time. It’s a smart strategy that allows you to take advantage of changing economic conditions.
To drive home the point about the reliability of real estate investments, let’s examine a graph of home values since the mid-1970s. The values display a consistent and upward trajectory, resembling the side of a volcano. Regardless of interest rates, economic fluctuations, recessions, or the passage of time, property values continue to appreciate. This makes real estate a reigning king in the world of investments.
As a Realtor or lender, our primary objective is to enlighten prospective buyers about the current reality of home values. It’s crucial to communicate this message, especially when making decisions seems difficult but is actually necessary. True professionals understand the importance of seizing opportunities in challenging times. They inform buyers of the long-term benefits of buying now and advocate for taking action.
Long term financial gains
The FHFA Home Price Index clearly illustrates the upward trajectory of home prices, even when adjusted for inflation. It’s important to remember that despite the high costs, purchasing a home today can lead to long-term financial gains. By considering inflation, mortgage rates, and historical data, it becomes evident that buying now is a prudent decision. As professionals in the real estate industry, it is our duty to provide potential buyers with the necessary information to make informed choices. So, I ask you, what are you doing to help your clients navigate this opportune time to buy a home?
