Across the country, home prices have soared during the pandemic as low housing inventory collided with surging demand. Fierce competition ensued and since then home prices have risen 19.2% in the last 12 months, putting many potential buyers out of the market.
The U.S. housing market’s half-million-dollar club is growing, with more cities than ever posting average home prices above $500,000.
But as prices have risen almost everywhere, some real estate markets have become prohibitively expensive for some potential buyers. A recent analysis by online real estate and financial planning site OJO Labs found that a benchmark home price once considered rare is becoming more common as median home prices now exceed $500,000 in many more and more cities.
Reviews: - recommended you read The U.S. housing market’s half-million-dollar club is growing, with more cities than ever posting average home prices above $500,000.
Who is in the club?
Austin is the latest addition to the exclusive club, according to the OJO Labs survey, which calculated final March home sales price figures for major US cities.
The list now includes 11 metropolitan areas. Prices in some of these cities were already well over $500,000 even before 2020, while in others they have skyrocketed since the pandemic began.
Here is the full list:
San Francisco (median home price: $1.3 million)
San Diego ($825,000)
The Angels. ($720,000)
New York ($520,000)
Portland, Oregon ($505,000)
Salt Lake City ($503,000)
Some of those cities, including Austin, San Diego and Denver, have seen home prices rise more than 20% in the last 12 months. In Salt Lake City, which experienced a population and job market boom during the pandemic, prices increased by more than 30%.
The accessibility crisis
At the start of the pandemic, homebuyers flocked to the market, taking advantage of historically low mortgage rates. For months, locking in low mortgage rates has been a strong incentive for homebuyers, despite rapidly rising home prices.
But in the first months of 2022, mortgage rates began to rise at a record pace, which is starting to cool the housing market. But for the rest of this year and likely into 2023, house price growth will likely slow but not slow, meaning prices will continue to rise, albeit at a slower pace than in the recent past.
That means more cities are about to join the half-million-dollar club, and the ones already in will likely be even less affordable.
"Prices will continue to grow in the short term, which means the number of real estate markets in that $500,000+ range could increase in the coming months, as there are a number of markets in that $400, $000 to $500,000 range," Chris Heller, director of real estate at OJO Labs, told Fortune.
In some of the cities with costs higher than $500,000, homebuyers may have to settle for prices unthinkable two years ago. In San Francisco, for example, studio apartments selling for $540,000 are still so cramped that beds have to be retracted to the ceiling during the day.
Some of the nearby cities to join the club include Las Vegas and Phoenix. Median home prices in these cities are well over $400,000, and prices have risen nearly 30% over the past year.
But higher mortgage rates and an expected slowdown in the housing market could normalize prices, leading to a smaller club for years to come.
"The market seems to be peaking as rates rise, so it should slow down and we might even see the list shrink over time," Heller said.
There will be a cumulative effect to gradually lower prices, according to Heller. With less competition for homes each month due to rising mortgage rates, listings will eventually increase and housing costs will begin to decline at a faster rate in the coming months.
"As inventory starts to build up, sellers have to be more competitive on price and that's when you see the rate of appreciation slow down or possibly drop," Heller said.