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Why Home Prices Are Still Rising

Mortgage rates drop, home prices jump … where will prices go next? … how to invest in single-family homes … millennial resentment toward boomers related to housing

Back in October, we drew three conclusions about the housing market that, unfortunately, are playing out as feared.

From our October 16th Digest:

First, don’t expect a crash anytime soon. It’s not coming. At best, we’ll see a slow leak in prices, like air gradually escaping a small tire puncture. At worst, there’s another price melt-up on the way.

Second, given the deterioration of our government’s financial position, if you can put money into rental real estate as a portfolio diversifier, it would be a wise move.

Third, the thornier issue is how this housing unaffordability is just another manifestation of the widening division between the “haves” and “have nots” in our nation. We’re increasingly polarized politically, socially, and economically. History shows this rarely ends well.

Let’s revisit each point, bringing us up to where things stand today.

As was our concern, falling mortgage rates are fueling higher home prices

It all boils down to simple supply and demand.

For nearly all last year, we did not have a highly-liquid, dynamic national housing market. Homeowners who were unwilling to sell kept inventories tight. So, only a handful of existing homes were on the market at any given time.

Despite the lack of supply, there remained enough deep-pocketed buyers to bid up the prices of these handful of homes for sale. Together, low supply and high demand acted as a buoy to prices.

Our fear was that when mortgage rates finally came down, a new stampede of buyers would charge into the housing market, keeping prices at nosebleed levels – or even pushing them higher.

Barbara Corcoran, real estate entrepreneur and star of ABC’s “Shark Tank” shared our opinion when she said:

The minute those interest rates come down, all hell’s going to break loose, and the prices are going to go through the roof.  

[Right now, sellers are] staying put. But they’re not going to stay put if interest rates go down by two points.

It’s going to be a signal for everybody to come back out and buy like crazy, and the house prices [will likely] go up by 20%. We could have COVID [market] all over again.

So, what has happened since our October Digest?

Let’s start with mortgage rates.

Below, we look at the average 30-year fixed rate mortgage in the United States. We take it back to 2020 for a little context, but we’ve circled what’s important.

Namely, after topping out at 8% in late-October of last year, mortgage rates have fallen sharply since. As I write Tuesday morning, the number comes in at 6.44%.

Chart showing the 30-year fixed rate mortgage hitting multi-year highs then falling hard toward the end of 2023Source: Federal Reserve data

Now, it just so happens that the latest home price data we have from CoreLogic (released last week) reflect what happened last November.

So, how did falling mortgage rates in November impact home prices during the month?

Here’s Grit Capital:

Home prices are rising quickly due to falling mortgage rates.

A new CoreLogic report shows a 5.2% national increase in home prices this November compared to last year, more than October’s 4.7% rise. This increase is linked to lower mortgage rates, enhancing buyer purchasing power.

As we noted back in October, the only way we see home prices crashing is if a recession forced the Fed to slash rates, which would similarly slash mortgage rates.

Plus, during a recession, many homeowners would have to sell their homes out of financial necessity, flooding the market with new inventory.

Barring that outcome, don’t bet on materially lower prices.

And, in fact, the CoreLogic report went on to predict home prices will rise another 2.5% over the next 12 months.

Moving to our next point, given our government’s financial trajectory and its implications for the dollar, put some investment capital in rental real estate if you can

On December 29th, the U.S. government’s debt topped $34 trillion for the first time ever. In the 18 days since then, we’ve tacked on another $40 billion.

For additional perspective on this debt monstrosity, our federal debt first topped $1 trillion in 1981. Nine years later, it had climbed to $3.2 trillion.

With that context, since President Biden took office in 2021, we’ve added nearly $6.3 trillion to the national debt.

So, in just three years, we’ve nearly tripled the amount of debt that it took our government nine years to create back in the 80s.

That’s evidence of our nation’s debt curve turning parabolic. This isn’t going to end well.

We’ve spilled plenty of ink here in the Digest detailing the trainwreck that’s happening before our eyes regarding the purchasing power of your hard-earned dollars. We won’t rehash all those specifics in this issue, but the conclusion remains – you must protect your wealth by getting your money out of the dollar. And rental real estate is a fantastic way to do that.

By the way, it’s not just about protecting your purchasing power. A long-term study shows that returns from rental real estate beat – wait for it – stocks.


A team of economists from the University of California, Davis, the University of Bonn, and the German central bank [analyzed] a stunning amount of data collected over a 145-year period of time.

The lead authors of the study… looked at 16 advanced economies over the past 145 years to find what offers the best return on investment. They compared returns on several asset classes, including equities, residential real estate, short-term treasury bills, and longer-term treasury bonds.

To better compare apples to apples, with each asset type, they adjusted for inflation and included all returns, not just appreciation. Dividend income was included for equities, and rental income was included for residential real estate.

Their findings, in short: Residential real estate was the better investment, averaging over seven percent per annum. Equities weren’t far behind, at just under seven percent.

If you’re looking to pull the trigger on a rental property, the cities with the highest annual rent increases for single-family homes are Providence, R.I., Hartford, Conn., Cincinnati, Milwaukee, and Chicago.

If you’re not able to afford expensive down-payments on properties, don’t worry

Today, a handful of online platforms are making single-family rental real estate accessible to everyone.

These platforms offer fractional ownerships in residential and commercial real estate either through investments in specific homes or commercial developments, or a fund with exposure to a broad portfolio of properties (similar to a private REIT).

It’s a passive way to be a rental real estate owner without having to know all the details of a specific, localized market – not to mention the hassle of vetting tenants or getting a call to fix a leak at 2:30 a.m.

Three of the most popular platforms are CrowdStreet, RoofStock, and FundRise. They vary by required investment size, fees, type of investment property available to investors, and whether they require accreditation, among other differences.

We have no affiliation with any of these companies, so please conduct your own due diligence. 

Finally, watch out for growing division between the “haves” and “have nots”

Here’s Lawrence Yun, chief economist of the National Association of Realtors:

The highest mortgage rate in two decades is detrimentally limiting the homeownership opportunity for many middle-class households.

Unintentionally, no doubt, the Federal Reserve is widening social inequality with only the high-income families able to comfortably buy a home.

In real time, we’re watching the continued fracturing of our society.

Those who were wealthy enough to own homes a few years ago are now sitting on robust capital gains and a marked leap in personal net worths. Those who couldn’t afford homes are now even further out of range. It’s growing especially challenging for younger generations.

Last Wednesday, Fortune ran an article detailing how Millennials are “carpooling for homes” by teaming up with friends to make a home purchase.

From Fortune:

The housing market is the least affordable it’s been since 1984… Enter “carpooling for homes” …

Gen Zers and millennials have found increasingly creative ways to generate the income they need for a down payment and sky-high monthly mortgage payments, like taking on side hustles and asking for money from family and friends, so the concept of co-buying is just another hack to break into an unbearable housing market.

Understandably, younger generations are frustrated by their plight. But that frustration is increasingly being channeled toward older generations.

The New York Times ran a piece on this last August. From the Times, quoting users on “X,” formerly Twitter:

“Gen X sucks.”

“Gen X had it so good with their high income jobs with excel skills and 30yr fixed interest mortgages. This is why they make the worst leaders, ZERO empathy for the people that came after them.”

We can all agree Gen X is the worst though right?

It’s not just Gen X. Boomers are also the recipients of a great deal of anger. Here’s a different article from Fortune:

The unlucky (and sad) millennial housing story may be getting tedious and repetitive, but maybe millennials have reason to be upset.

Just consider this, they’re constantly getting crushed in the housing market, and boomers keep coming out on top.

To keep this Digest from running too long, we won’t dive into the other inter-demographic frustrations, but they exist.

As this decade brings more dollar debasement, the financial chasm will widen even further, and the social strain will intensify

Americans with financial assets will watch the nominal values of those assets race higher – their quality of life will remain as is or improve…

Meanwhile, those without financial assets will slip further behind as their dollars buy less and less and their living standards decline.

It’s not a good dynamic for the social cohesion of our nation.

While there’s not much you can do about this from a macro perspective, from a micro perspective, you can see the writing on the wall and do all you can to ride this wave higher with hard assets…instead of being drowned by it.

We’ll keep you updated.

Have a good evening,

Jeff Remsburg

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