Will house prices be higher in the US in 90 days (Jan 2022)?

My best estimate

Yes

Prediction Date: 01/24/2022

Deadline Date: 04/24/2022

The Case-Schiller index is a widely used measure of house prices in the United States. It is based on actual sales so new data points are reported with a two month lag. House price growth in the last year was off the charts, rising 20% year over year in the month ending October 2022, the highest growth rate recorded since the beginning of the index.

Source: FRED

House prices are partly driven by mortgage rates. When the Fed cut interest rates in response to Covid, mortgage rates fell significantly. Now with inflation picking up, mortgage rates have reversed, leading to significant concerns about what it might do to house prices.

Additionally, house prices are partly driven by the stock market. The stock market is a source of cash for new purchases for many homebuyers, and with the stock market at an all time high at the end of 2021, house prices also rose. However, now that we’ve seen an almost 10% drop in the S&P 500 to start the year, this could also contribute to a negative impact on housing prices.

However, house prices are ultimately a function of supply and demand. While demand may be tempered by the high mortgage rates and lower stock prices, we believe that a) the economy is strong and the stock market will ultimately recover, b) demand is currently driven mostly by demographics and an extraordinary push of millennial looking to enter the new homebuyer market and c) supply has been hugely constrained over the last decade leading to a continued shortage of housing.

As quoted in BankRate.com on the growth of millennial homebuyers:

Millennials are the fastest-growing segment of homebuyers, accounting for 37 percent of the overall U.S. housing market.

Millennials make up an even bigger share of first-time homebuyers. In all, 82 percent of younger millennial buyers (ages 22-30) and 48 percent of older millennial buyers (31-40) purchased their first homes between July 2019 and July 2020.

First-time buyers represented 31 percent of all purchasers in the National Association of Realtor’s most recent annual survey, though that number has since dropped off

https://www.bankrate.com/mortgages/millennials-and-homebuying/

Significant shortfall of new home construction over the past decade that has only recently picked up

Source: FRED

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