In June, the total value of U.S. homes achieved a historic high at $46.8 trillion, surpassing the prior record of $46.6 trillion set a year earlier. This surge, as determined by analyzing the Redfin Estimate across 90 million U.S. residential properties, underlines a 0.4% rise ($166.2 billion) from the preceding year and an impressive 19.1% increase ($7.5 trillion) over two years.
Notably, the current housing market stands out due to its record-high home values despite sluggish demand. This discrepancy arises from a shortage of available homes, driven by a lack of sellers. This supply-demand imbalance is the key factor maintaining elevated property values.
The prevalence of the 30-year fixed-rate mortgage is a pivotal factor propping up home values in the U.S. Many homeowners locked in an attractive 3% mortgage rate during the pandemic, making them reluctant to move and acquire a rate that’s double that figure. Consequently, current buyers contend for a small pool of homes, preventing a drop in home values.
In contrast to the U.S., countries favoring variable-rate mortgages experience a less pronounced “lock-in” effect.
Around 90% of homeowners with mortgages enjoy rates below 6%, notably below the 6.96% average. Consequently, only 1% of homes have changed hands this year, marking the lowest share in a decade. The U.S. housing market experienced a 15% YoY drop in homes for sale, reaching an all-time low in June, marking the biggest annual decline in almost two years.
“The U.S. housing market has become a system of winners and losers,” remarks Redfin Economics Research Lead Chen Zhao. “Winners are homeowners who secured mortgages before rates began rising, continuing to accumulate equity despite slowed demand. The losers are often first-time buyers, entering a market with high borrowing costs, record home prices, and limited options.”
Major tech hubs on the West Coast and pandemic-driven boomtowns experienced the most significant declines in home value. Out of the 32 U.S. metropolitan areas where aggregate home value declined in June, 11 are in California and seven are in Texas. Locations such as Austin, Oakland, Seattle, San Francisco, and Los Angeles recorded considerable drops in value due to their high price levels. This trend was amplified by remote workers leaving these areas during the pandemic, in pursuit of more value and space.
The situation mirrors pandemic boomtowns, where previously overheated home values are now moderating. Austin’s buyers are proceeding with caution due to increased inventory.
In dollar terms, Los Angeles saw the most considerable decline in aggregate home value, experiencing a $152.6 billion YoY drop in June. This was followed by Oakland (-$85.8 billion), Seattle (-$82.7 billion), Phoenix (-$58.4 billion), and San Francisco (-$57.5 billion).
More affordable markets displayed the most significant home value gains. For instance, Little Rock, Camden, and Milwaukee witnessed greater increases due to more moderate price growth during the pandemic. This relative affordability stimulates buyer demand.
Millennials have surged in home value, surpassing the Silent Generation. In the first quarter of 2023, the total value of U.S. homes owned by millennials grew 2.9% YoY to $5 trillion. This marked the second consecutive quarter where Millennials held more value than the Silent Generation. However, despite their equity gains, millennial home equity declined by 18.2% YoY in the first quarter. This could be due to using gained home equity, often through products like home equity lines of credit (HELOC), to tackle credit card debt, student loans, and home renovations.
Home values have fared better in suburbs and rural areas compared to urban zones. Urban area home values declined by 0.9% YoY to $10.2 trillion in June. Meanwhile, suburban values increased by 0.2% to $29.1 trillion, and rural areas saw a 2.6% rise to $7.4 trillion. The pandemic elevated the appeal of suburbs as remote work became more prevalent.
Certain Asian neighborhoods experienced a more significant drop in home value, with the total value falling by 3.3% YoY in June. Comparatively, Hispanic/Latino, white, and Black neighborhoods saw milder shifts in value.
Homes valued between $250,000 and $750,000 exhibited the most substantial value gains, while luxury markets saw declines. The shift in demand towards more affordable segments contributes to this trend.
The analysis employed Redfin’s Estimate, MLS data, and public records, to trace changes in home values based on location, race/ethnicity, and generation. It underscores the distinct dynamics molding the U.S. housing market.
