Despite High Mortgage Rates, Home Prices Soar in Major US Cities
Even with high mortgage rates hovering between 6% and 7% throughout much of 2024, a surprising trend has emerged in the US housing market: home prices are climbing in most major cities. This counterintuitive surge, fueled by a combination of limited supply and persistent demand, particularly from wealthier buyers, has resulted in a 5.8% increase in median home prices across the 50 largest U.S. cities through November 2024, compared to the entirety of 2023, according to Redfin data. This upward trajectory defies expectations, as higher interest rates typically dampen buyer enthusiasm and slow price growth. The stark contrast highlights the complex interplay of economic factors currently at play in the real estate sector.
Key Takeaways: A Market Defying Expectations
- Home prices are up: Despite high mortgage rates, median home prices in the 50 largest U.S. cities increased by 5.8% through November 2024 compared to 2023.
- Regional variations exist: While many cities experienced significant growth, San Antonio and Austin, Texas, saw relatively flat prices, highlighting regional inconsistencies.
- Demand outpaces supply: Limited housing inventory is a major driver of price increases, particularly in areas close to major metropolitan areas.
- Surprising growth areas: Rust Belt cities like Milwaukee, Detroit, and Cleveland are experiencing unexpected increases in demand and home prices.
- Affluent buyers drive the market: Wealthier buyers are a significant force in the market, pushing prices higher even with elevated mortgage rates.
Dramatic Price Increases in Specific Markets
The data reveals a wide range of price increases across the country. Anaheim, California, leads the pack with a staggering 12.5% increase. This surge is attributed to the city’s proximity to Los Angeles, where high prices are pushing buyers into surrounding areas. This isn’t an isolated occurrence; similar patterns are observed in other suburban areas near major cities like New York City (Newark and Nassau County, experiencing increases of 11.3% and 9.9%, respectively) and further illustrating a “spillover” effect.
Other Notable Market Performers
Other cities experiencing significant price growth include:
- Newark, New Jersey: 11.3%
- New Brunswick, New Jersey: 10.8%
- Providence, Rhode Island: 9.8%
- West Palm Beach, Florida: 8.6%
- Chicago: 8.6%
- Detroit: 8.5%
- San Jose, California: 8.5%
- Fort Lauderdale, Florida: 8.3%
- Milwaukee, Wisconsin: 8.1%
- Seattle: 8.1%
- Miami: 7.9%
- Cleveland: 7.5%
- Warren, Michigan: 7.5%
The rapid growth in areas like Anaheim underscores the persistent shortage of housing inventory. The Voice of OC, a local news outlet, points towards developers focusing on homes for above-moderate-income families, exacerbating the affordability gap and leaving many residents without options. This pattern repeats itself across the country, often in areas experiencing population growth and a lack of affordable housing construction.
The Northeast and the Lure of Suburbs
The Northeast is also experiencing significant price increases, particularly in areas surrounding New York City. The rise of remote work and the high cost of living in major urban centers are driving buyers toward more affordable suburban communities, pushing up prices in these previously less expensive areas. The improved accessibility to jobs and the possibility to maintain a comfortable urban lifestyle while living in a more affordable location fuel this ongoing trend.
Rust Belt Revival: Unexpected Demand
One of the more unexpected trends is the rise in home prices in some Rust Belt cities. Cities like Milwaukee, Detroit, and Cleveland, once synonymous with affordability, are seeing increased demand. This is largely because of buyers actively seeking lower-cost alternatives to more expensive coastal and southern markets. The increasing affordability relative to other booming areas contributes to this surge, presenting a shift in the real-estate landscape.
The Role of Wealthy Buyers and Limited Supply
The bottom line is that even with elevated mortgage rates, demand, particularly from wealthier buyers, continues to outstrip the limited housing supply. This imbalance is driving up prices, particularly in large cities with concentrations of high-net-worth individuals. Wealthy buyers, less impacted by higher interest rates, are able to continue driving competition in the market, forcing prices upward even during more restrictive market conditions. Furthermore, this trend is particularly evident in major cities, as they house a large portion of the nation’s wealthiest residents.
Looking Ahead: A Complex Market
The current state of the housing market is a complex one. While higher mortgage rates typically serve as a cooling mechanism, the persistent shortage of housing—combined with consistent, strong demand from affluent buyers—suggests the existing market dynamics may outweigh the typical effects of increased borrowing costs. Whether this trend continues into 2025 remains to be seen, as various economic factors can influence buyer confidence and demand. However, based on recent trends, this market behavior showcases a fundamental shift in home buying preferences and economic impacts on the real estate market requiring longer-term analysis to obtain a more accurate perspective.
