MADISON, Wis.–The housing market is cyclical, and a new analysis from TruStage’s chief economist offers some insights into just where in the cycle the market stands, and why credit unions could see a bit of a surge in real estate lending.
In the new Trends Report released by the company, which is based on data through December of 2024, Steve Rick notes that real home prices (inflation adjusted) increased 3.1% in 2024 after falling 3% in 2022 and falling 1% in 2023 as lower interest rates and low housing inventories positively impacted the very interest rate-sensitive housing market.
“Nominal home prices rose 6.0% in 2024, slightly higher than the cost of living as measured by the Consumer Price Index, which rose 2.9% from December 2023 to December 2024,” Rick wrote in the report. “If we subtract this 2.9% inflation rate from the 6.0% nominal home price growth rate, we can calculate the real home price growth rate of 3.1% which was almost twice the 1.6% long run average. This made investing in housing a very good investment in 2024 after two years of falling real home prices.”
Rick said the chart shown here clearly demonstrates just how the housing market moves in cycles.
What to ‘Expect’
“In the late 1980s the housing market experienced five years of positive real home price appreciation, followed by approximately five years of negative real price growth rates in the early 1990s,” Rick said. “Then the nine years of the housing price bubble of 1997 to 2005 were followed by six years of negative real home price growth rates in 2006-2011.
“We can expect real home price growth rates to remain very low or even negative for the next few years as nominal home price growth rates remain close to or below the rate of inflation of goods and services,” Rick continued. “The recent fall in the inflation rate has pushed down long-term interest rates and in turn the 30-year mortgage interest rate.
The Forecast
Rick is forecasting that if the trend continues many homeowners who were reluctant to sell their home and give up their existing low-rate mortgage will list their home for sale.
“This increase in the supply of homes will cause downward pressure on home price appreciation,” he stated in the report. “ The expected fall in real home prices during the next few years will help make housing more affordable to many households who are looking to purchase homes. Credit unions could therefore see mortgage loan originations grow 10% this year from admittedly a very low level in 2024.”
