US Home Prices have increased by 12% through early 2021 according to data from the Case-Shiller Home Price Index. This is the largest annual increase since 2006 – right before the last housing market crash. This increase caps off a long-run of home price appreciation, with values across America nearly doubling since 2012.
At the same time inflation, measured by changes in the Consumer Price Index (CPI), has been fairly low in that span. In fact, home prices are now at their highest inflation-adjusted level of all-time.
This growth is fairly unique, because for most of the 20th century real estate was a boring, low-growth asset. According to the Case Shiller HPI, the inflation-adjusted price of a home in 2000 was similar to its level 100 years earlier in 1900.
But ever since 2000 things have changed. Real estate, which was once a steady asset, has become increasingly volatile. Prices surge, then crash, then surge again. What is this reason for this volatility and continued detachment from inflation?
Home and Garden Television. HGTV. Debuting in 1994, HGTV has popularized real estate investment and home flipping to Americans across the country. With shows like Flip or Flop, Fixer Upper, and Property Brothers, HGTV has made any US household with a bit of extra savings into a potential real estate investor.
Ever since HGTV’s debut, the number of investors and realtors in the US housing market has spiked, nearly doubling from 2000 to 2020. The result of more investors and more realtors is, you guessed it, more speculation. With millions more people trying to earn wealth from the real estate market, prices have become increasingly volatile and bubble-like.
The glamorization of real estate investing and flipping, to go along with a huge influx of new participants in the housing market, means that real estate likely might not possess the same type of hyperinflation-hedging abilities it did in 1970s. It also means that the US housing market might be permanently more volatile, experiencing rampant appreciation and crash cycles.
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0:00 Home Prices v. Inflation
1:54 Real Estate No Longer Safe?
4:34 100 Years of Home Prices
7:32 Housing: First Steady, Now Volatile!
9:30 Home Price / Inflation Detachment
11:15 The HGTV Effect
13:25 The 2000 Investor Boom!
15:28 Destabilizing the Housing Market
17:20 Too Many Realtors?
19:34 Huge Momentum & Volatility
21:56 Hyperinflation? Or Deflation?
24:22 Remember…You Can Lose Money