In the first half of 2024, the most common question I have been asked is whether housing is overpriced. Although my instincts told me “no,” I wanted to take a deep dive into the numbers to see what the data was telling us. Based on my analysis, the answer is “yes and no.”
Median Housing Prices Declined by 1.5% on a Nominal Basis, in 2023
Since 1964, the median home sale value has only declined year over year (on a nominal basis) six times. This corresponds to five distinct events: the 1970 recession, the 1991 recession, the 2008-2009 recession, 2019 and 2023. The non-recessionary corrections in 2023 and 2019 represent the smallest in the last 60 years and suggests a relatively minor retreat from the cyclical peak of 2022.
Data Source: US Census Bureau and US Department of HUD
In REAL Terms, The Decline is More Severe
Given the severe inflation of 2022 and 2023, however, I wondered if inflation had been masking a larger decline in housing in REAL terms. In fact, when adjusting for inflation, median home prices have fallen 20 times year over year, since 1964. This represents ten distinct events and includes every recession we have seen since 1964. When evaluated on a real basis, the 2023 decline ranks as one of the more significant drops in real home value we have witnessed in the last 60 years.
Data Source: US Census Bureau and US Department of HUD
At nearly 7.5%, the real decline in median home values for 2023 was the largest negative adjustment we have witnessed in housing outside of a recession. Further, every negative adjustment “event” we have seen over 5% has spanned at least two-years, whereas 2023 made the correction in just one.
Prediction for 2024?
Using regression analysis, we can attempt to predict the real median home value for 2024. The 2023 trend line suggests that housing was slightly over-valued for 2023, in real terms. For 2024, the model suggests that the median home value will be $428,350, which is 0.4% above 2023. The actual seasonally adjusted median home sale through the first half of 2024 is $426,900, which is 0.3% below the 2023 actual. This gives us a tight range of ±0.4%, suggesting a relatively balanced market, assuming a property is priced on market fundamentals, which currently mirror April 2022 pricing.
Data Source: US Census Bureau and US Department of HUD
So What Does This Mean?
On a nominal basis, the median home value has probably fallen about 1.5% to 2.0% since 2022. On a real basis, however, the decline in housing wealth (which equates to purchasing power of buyers) is off by around 7.5%. The negative sentiment of the purchasing consumer will likely lead to further declines on a nominal basis, even as inflation comes under control.
For homeowners looking to sell their property, it is important to recognize the significant real decline in consumer purchasing power, and price your property competitively as we head into the second half of the year.
