In a recent analysis, real estate economist Ken Johnson, who serves as the Christie Kirkland Walker real estate chair at the University of Mississippi, reports that the average home price is being sold at a significant premium.
Using 25 years of data from Zillow dating back to January 2000, Johnson’s analysis compares average home prices in the U.S. to predicted statistical models. A home’s current average closing price is at a 19.47% premium above the long-term pricing trend, or predicted prices.
At the peak of the last housing cycle, October 2006, the average property transaction closed at a 26% premium, according to the results. The average discount at the bottom of the last cycle, April 2012, was 23.43%.
Though current home prices are selling at a premium, the analysis shows that the rent for an average rental unit is nearly equal to the predicted rate. Based on the models, rental units in the U.S. are, on average, priced at a 0.25% premium to the predicted models. Rent was at an 8.39% discounted rate in December 2020, and at a 6.36% premium in June 2015.
Though rental units are following the long-term pricing trend, Johnson does note that affordability is still out of reach for most households since incomes are not keeping up with the price of living.
Since rents are “essentially in equilibrium,” he predicts that most new households, and those moving to new locations around the country, will likely rent as opposed to owning.
“If this is the case, these renters should consistently save at levels equal to the amounts of money they would have otherwise put into homeownership. That is, they should invest the saved downpayment and closing costs now and regularly invest forgone ownership costs—property taxes, property insurance, HOA fees, property maintenance cost, etc.,” Johnson said in a press release. “Research has shown that renting and reinvesting monies otherwise put into homeownership produces greater wealth creation, on average, than owning and building equity.”
A dynamic where a lack of affordable homes pushes more and more families to rent remains a long-term concern for the housing industry, with National Association of REALTORS® (NAR) Chief Economist Lawrence Yun warning back in 2022 that the United States might become a “renter society” based on corporate landlords and institutional investors (though these companies still make up a relatively small proportion of homebuyers today).
Aligning with Johnson’s findings, Fannie Mae’s home price index (HPI) for the fourth quarter of 2024 showed a 5.8% year-over-year increase. In a recent housing outlook, they predict that housing prices will maintain a positive trajectory in 2025.
Similarly, CoreLogic’s HPI showed a 3.4% year-over-year increase in home prices nationwide in November 2024. Their forecast predicts a 3.8% increase from November 2024 to November 2025.
This upward trend in national prices leads into the off-season as well.
“The November (2024) median sales price for all single-family homes in the U.S. was $395,000, up $10,000 from the previous month,” read the report. “Come spring, it is likely that the national housing market will be reinvigorated and push prices even higher.”
