The largest asset class just got bigger. The nation’s housing market is now worth $47.5 trillion, after its value increased by another $2.4 trillion over the past year, according to a preliminary Redfin analysis of more than 90 million homes as of December last year . The answer, however, lies in the lure of remote work, and a very particular type of city is driving the rise.
“In percentage terms, the total value of U.S. homes increased 5.3% from a year earlier in December, the largest increase in 11 months, and was up 13.3% ($5.6 trillion) compared to two years earlier,” say the authors of the report. wrote journalist Lily Katz and economic team head Chen Zhao.
The biggest increase occurred in the middle: The most affordable metro areas saw the biggest jumps, while “expensive metros and pandemic boom cities” saw declines or small gains. For example, the total value of homes in Newark, New Jersey, a tough city a stone’s throw from Manhattan, has skyrocketed 12.8% over the past year to $359.6 billion, as of December ; and in New Haven, Connecticut, a similarly rugged urban environment that is home to Yale University, total home values increased 11.9%. Camden, New Jersey; Charleston, South Carolina; and Elgin, Illinois, all saw the total value of their homes increase by more than 10%.
“Places like Newark and Camden will likely see home values rise, in part because they are attracting demand from people priced outside of New York and who can now work remotely,” the authors wrote, later adding that metropolitan areas similar ones are seeing gains because “they are affordable, and when mortgage rates and home prices are high, the demand for affordable homes increases.”
These bear a strong resemblance to what the World Bank and other experts call the “secondary city,” with populations ranging from 150,000 and above and serving as “secondary hubs” for larger metropolitan areas. Given that 2023 was the year the remote work wars ended in a stalemate in favor of a hybrid status quo of two or three days a week in the office, it makes sense that boomtown wings will be cut and new growth centers arise. Newark, outside New York, and Camden, outside Philadelphia, are clear winners of this new regime, as each serves, to coin a phrase, as a sort of secondary city to the stagnant dominant metro. (Colloquial usage insists that a subcity is a city that is geographically housed within another, such as Beverly Hills within Los Angeles.)
The losers
Meanwhile, Boise, Idaho; New York; New Orleans; and Stockton, California, all saw their values decline. Others, such as Philadelphia and Denver, saw very small increases. It’s because these metro areas are already too expensive or “an influx of out-of-towners has caused home values to skyrocket during the pandemic,” the authors said.
Additionally, the total value of homes in urban areas increased 3.6% year over year, reaching approximately $10 trillion in December. In the suburbs, the value of homes increased by 5.6%, approximately $29 trillion. And in rural areas, the total value increased 6.3% to $7.4 trillion, according to the analysis.
“Suburbs have come back into vogue during the pandemic, while cities have fallen out of favor, largely due to the shift to remote work and the housing affordability crisis,” Katz and Zhao wrote.
However, the value of homes in the suburbs is much higher than in urban and rural areas, “simply because most Americans live in the suburbs,” so there are many more properties. There are approximately 56 million homes in the suburbs. In rural and urban areas there are just over 20 million each.
But last year the housing market stalled and sales of existing homes plummeted to their lowest point in 30 years. So why do house prices continue to rise? The authors of the analysis divided everything into three reasons.
First, there isn’t enough inventory for sale because homeowners who have locked in a low mortgage rate are holding on to their homes, knowing that if they sell, they’ll lose their low rate and end up with one that could more than double what it was. “Supply is even more limited than demand, meaning buyers are competing for a limited number of homes,” they wrote. “This is supporting values of both homes that are already for sale and those that may come on the market in the future.”
Second, home values bottomed out about a year ago. By the end of 2022, total home values across the country were close to bottoming out because the market cooled so dramatically in reaction to the mortgage rate shock. This is also “part of the reason why year-over-year growth at the end of 2023 was so large,” Katz and Zhao wrote.
The third and final reason is a little more complicated and seems slightly counterintuitive. It’s well known that the country has a housing crisis, but there are some places that are building homes, which has technically contributed to the increase in total home value, according to Redfin.
Homeowners are “sitting”
“American homeowners are doing well,” Zhao said. “They hold a tremendous amount of real estate wealth, despite low buyer demand, because home values have skyrocketed during the pandemic and now a supply shortage is preventing those values from falling.”
He continued: “Prospective buyers are not so lucky. The combination of high mortgage rates, high home prices and a limited number of homes for sale means homeownership is more unaffordable than ever. One silver lining for buyers is that mortgage rates should start to fall before the end of 2024.”
Late last year, several forecasters said mortgage rates would fall, which they said had fallen from a recent peak above 8%. However, after declining for several weeks, they started to rise again and currently stand at 7.10%. So this easing of accessibility predicted by multiple institutions hasn’t actually happened yet, but it’s only the third month of the year. However, the median home value went from $474,740 in December 2022 to $495,183 in December last year, according to Redfin.