Why Home Prices Keep Rising

Today, first-time home buyers in once-affordable markets have competition from all kinds of sources that didn’t exist a generation ago: from global capital, from all-cash “iBuyers” that size up homes by algorithm, from institutional investors renting single-family homes, from smaller-scale investors running Airbnbs.

“It’s really hard for an owner-occupier to compete with the amount of money that’s flowing into this region,” said Dan Immergluck, a professor at Georgia State in Atlanta. There, even in a Sun Belt market with robust new housing construction, supply still can’t keep up with demand.

Perhaps at some point in the medium term, the geographic reshuffling of remote workers will settle down, calming price growth in places like Boise, Idaho, and Denver that have been most jolted by it. But the investor purchasers aren’t going away. Nor are new technologies that enable homes to sell at a much faster pace.

Rising mortgage rates should help slow the growth in home prices. But they won’t affect anyone paying cash. And higher rates will make home owning even less affordable.

“For first-time home buyers, they’re going to find it very, very difficult to get a home in the next two, three years,” said Mark Zandi, the chief economist at Moody’s Analytics. And in the meantime they’ll be paying higher rents, cutting into their ability to save for a down payment.

Working-class households on the cusp of homeownership before the pandemic may now need another five to 10 years to play catch-up, said Ralph McLaughlin, the chief economist at Kukun, a company that tracks real estate investment activity. The days of one-earner households buying a decent-quality starter home anywhere in the U.S. may be over, he said — unless that one earner is a high earner.

“As a housing economist, it’s kind of depressing to think that there may not be an undoing of the hardships that have been brought upon young households trying to get their foot in the door of the housing market” during the pandemic, Mr. McLaughlin said.