The rise in local rental prices (see above) reflects a larger trend: two years of growth in the US housing market. That includes house prices, rental prices, remodeling expenditures, brokerage fees, etc.

From March 2021 to March 2022, the average home price as measured by the S&P CoreLogic Case-Shiller National Index rose by a stout +20.6%. That’s the highest rate of growth ever recorded for the index.

In a recent issue of Zacks, Mitch Zacks explains the factors driving this:

1. Low Inventory of Housing 

Following the 2008 Global Financial Crisis – spurred in part by a collapse in the housing market – new-home construction in the US plateaued. As a result, Freddie Mac estimates that the US is about 3 million homes short of what’s needed. At the end of April 2022, there were only 1.03 million homes for sale in the US. That’s about a two-month supply – about 50% less than historical averages.

2. Low Interest Rates 

Part of the Federal Reserve’s plan to boost the economy during the pandemic involved becoming a large-scale purchaser of bonds backed by agency mortgage loans from Fannie Mae and Freddie Mac. The Fed created a massive demand for mortgage securities, which pushed yields down and generated the lowest mortgage interest rates in history by the end of 2020.

3. A Surge of Millennial Buyers 

In 2019, millennials surpassed the baby boomers as the largest living adult generation in the US. But many were not buying houses. They were living with their parents. COVID-19 changed that. In 2020, millennials accounted for more than 50% of all home-purchase loan applications for the first time ever. By 2021, millennials made up 67% of first-time mortgage applications and 37% of repeat-purchase applications. A rising trend that appears likely to continue.