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NC Triangle

The North Carolina Research Triangle metropolitan area includes Raleigh, Durham, and Chapel Hill, along with surrounding towns such as Cary. The Triangle is home to three prestigious research universities: the University of North Carolina at Chapel Hill, Duke University, and North Carolina State University.

Research Triangle

The Research Triangle Park (RTP) in North Carolina, established in 1959, is one of the largest and most prominent research and development centers in the United States. details

Surrounding Raleigh

A number of satellite cities and towns surrounding Raleigh City contribute to the Research Triangle region's dynamic character. These communities make the area a vibrant and appealing place to live and work. details

Raleigh City

Raleigh, the capital city of North Carolina, situated at the central part of the state, is a vibrant and rapidly growing city known for its blend of Southern charm and modern amenities. details

Durham-Chapel Hill

American Tobacco Campus at Downtown Durham

Durham is home to Duke university and has a rich history rooted in the tobacco industry. Chapel Hill is the westernmost point of the Research Triangle. It is home to the University of North Carolina at Chapel Hill. details

U.S. Housing Market Analysis by Triangle Homes

U.S. Median sale price of sold homes from 1990 to 2022

* All data are nominal and not adjusted for inflation or seasonality. The blue line is plotted based on the values of the left y-axis, while the two orange lines are plotted based on the values of the right y-axis.

According to Federal Reserve Economic Data, the median sale price of homes sold in the United States was $123,900 in 1990, while in 2022 it was $413,500 (represented by the blue line with circles). This represents an increase of 234%, with an annual return of more than 7%. The orange line with circle marks represents the median household income in the United States, which was $29,940 in 1990 and $74,580 in 2022. The orange line with triangle marks represents the nominal Gross Domestic Product (GDP) per capita in the United States, which was $23,889 in 1990 and $76,329 in 2022. From the graph, we can observe that the median household income was significantly higher than GDP per capita in the 1990s, while by the 2020s, the median household income had even fallen below GDP per capita. This contrast suggests that household income growth has significantly lagged behind the increase in GDP per Capita.

Ratios of U.S. Home Price to Household Income and GDP per Capita

* All data are nominal and not adjusted for inflation or seasonality. The blue line is the ratio of the median U.S. home price to median U.S. household income, while the orange line is the ratio of the median U.S. home price to U.S. GDP per capita.

Based on the data above, Triangle Homes calculate the ratio of median home prices to median household income (represented by the blue line) and the ratio of median home prices to GDP per capita (represented by the orange line). The blue line shows that the home price-to-income ratio steadily increased from below 4 in the 1990s to over 5.5 by 2022, indicating that home prices have risen significantly faster than household incomes. Meanwhile, the home price-to-GDP ratio (orange line) has remained relatively stable during this period. Notably, the home price-to-GDP ratio in 2022 is very close to the levels seen in 2006 and 2007, just before the subprime mortgage crisis.

By comparing these two ratios, we gain a deeper understanding of the current issue of housing affordability. The unaffordability of housing is not solely due to rising home prices, but more significantly because household income growth has lagged far behind overall economic growth. In other words, although the economy is expanding, income growth has not kept pace with rising home prices, further exacerbating the burden of buying a home.

Although the rapid rise in home prices in recent years has raised concerns about a real estate bubble in certain areas, there are few signs of significant concern in the overall U.S. market. While the market is showing signs of cooling, such as declines in home sales and prices, a large-scale collapse similar to 2008 is unlikely in the short term. However, it remains important to closely monitor economic trends, interest rate fluctuations, and housing supply and demand dynamics. A sharp economic downturn or a rise in unemployment leading to widespread foreclosures could become potential triggers for a real estate market collapse.

A Cross-Market Analysis of the U.S. Residential Property Index

* All price indices are relative to data from 2010. Due to limitations in data availability and accuracy, not all major economies are included.

Triangle Homes also compare the U.S. housing market with other major economies over the same period. The chart above illustrates the changes in housing price indices for the United States (red line), Japan (gray line), Germany (yellow line), the United Kingdom (green line), and France (blue line). For easier comparison, all housing price index data are expressed as relative values, using 2010 as the baseline year, with each country’s index for that year set to 100.

From the chart, it is evident that, except for Japan, all countries experienced significant increases in housing prices during this period. Japan’s real estate market, following the bubble burst in the early 1990s, experienced a prolonged decline in housing prices, stabilizing only in the 2010s. In contrast, the U.S. housing price index exhibited relatively rapid growth among these five countries, ranking second after the United Kingdom and slightly ahead of France. Despite the notable increase in U.S. housing prices over the past decade, particularly in the years following the pandemic, the growth remains relatively reasonable and has not reached excessive levels.

The Case-Shiller Home Price Index and Interest Rates

As we know, the real estate market is closely linked to interest rates. Next, Triangle Homes use the Case-Shiller Home Price Index to explore how interest rates impact the U.S. housing market. The Case-Shiller Home Price Index is a widely recognized measure of U.S. residential real estate prices. It employs a repeat-sales method to determine home values and adjusts for inflation, providing a more accurate long-term price trend.

In the chart below, the blue line represents the S&P Case-Shiller National Home Price Index, while the orange line with triangles shows the effective federal funds rate, and the orange line with circles represents the average 30-year fixed mortgage rate in the U.S. The Federal Reserve sets a target range for the federal funds rate during its Federal Open Market Committee meetings, and fluctuations in the federal funds rate influence various related market rates, including mortgage rates.

Four U.S. Distinct Economic Recessions Since 1990

Since the 1990s, the United States has experienced four economic recessions:

July 1990 to March 1991: This recession was primarily driven by the sharp rise in oil prices caused by the Gulf War in 1990. The sudden spike in energy costs placed significant pressure on the economy, leading to a contraction in business activity and consumer confidence. During this period, the S&P 500 Index quickly dropped from 860 points to 717 points.

March 2001 to November 2001: This recession was caused by the bursting of the dot-com bubble, which had fueled an overvaluation of technology stocks. This economic downturn was further exacerbated by the 9/11 terrorist attacks, which caused a sharp increase in market volatility and investor panic. During this time, the S&P 500 Index plummeted from 2,456 points to 1,838 points, as the shock to the economy rippled through multiple industries, including travel, insurance, and finance.

Late 2007 to June 2009: Often referred to as the Great Recession, this period is widely considered the most severe U.S. economic crisis since the Great Depression. The downturn was triggered by the collapse of the subprime mortgage market, leading to a nationwide real estate crash and a subsequent financial system meltdown. The S&P 500 Index fell from 2,335 points to 1,091 points, marking a dramatic decline of over 50%.

Early 2020: The most recent recession, occurring in early 2020, was caused by the global COVID-19 pandemic. Despite its relatively short duration of just over two months, the economic damage was immense. Unemployment soared to a level not seen since the Great Depression, and many industries, particularly travel, hospitality, and retail, were severely affected. Though the S&P 500 initially dropped sharply, it rebounded quickly as fiscal and monetary measures were introduced to stabilize the economy.

The gray areas in the chart clearly indicate the periods of four distinct economic recessions. It is worth noting that, over the past thirty years, the real estate market has experienced a consistent upward trend for most of the time. While the stock market tends to experience significant volatility during recessions, the real estate market has generally remained more stable. This stability has been especially evident during smaller, short-term recessions, where the housing market has been less affected compared to the stock market.

For instance, the most recent recession, triggered by the COVID-19 pandemic, dealt a severe blow to the global economy, causing widespread disruptions and uncertainty. Yet, shortly after the recession ended, the national housing market quickly boomed. This remarkable rebound can be attributed to several converging factors, including historically low mortgage rates, a shortage of available housing, and changes in people’s lifestyles, such as increased demand for suburban living and home office spaces. These elements created a "perfect storm," fueling an extraordinary surge in home prices.

However, the Case-Shiller Home Price Index also highlights the unprecedented pace of this housing price increase following the pandemic. It surged from just under 220 to over 300 in a span of two years, representing a staggering 40% rise. This rapid escalation in home values has naturally sparked growing concerns about housing affordability, particularly for first-time buyers and middle-income families. Additionally, there are mounting fears that the housing market may be heading toward another bubble, as price growth outpaces income levels and creates potential imbalances in the market.

Furthermore, the chart indicates that when problems arise within the housing market itself, the downturns often last for a relatively long period. For instance, during the recession triggered by the subprime mortgage crisis, the decline in home prices began in July 2006 and did not experience a rebound until February 2012, resulting in an astonishing five years and seven months of falling housing prices. In contrast, the S&P 500 Index peaked in October 2007 at 2,335 points. After reaching this peak, the index steadily declined, entering a recovery phase only in February 2009, which resulted in a total downturn lasting one year and four months.

This stark difference in duration suggests that, while the housing market tends to be more resilient to short-term economic downturns compared to the stock market, it faces significant challenges when entering a prolonged downward trend. The length of recovery times in the housing market highlights the structural issues and complexities that can arise within this sector. Factors such as consumer confidence, lending practices, and overall economic conditions all play crucial roles in determining how quickly the market can bounce back.

The federal funds rate and U.S. 30-year fixed mortgage rate

The federal funds rate is the interest rate for short-term borrowing between banks in the United States, regulated by the Federal Reserve through open market operations. It is one of the Federal Reserve's most important monetary policy tools for controlling inflation, promoting employment, and maintaining financial stability. When inflationary pressures rise, the Federal Reserve typically raises the federal funds rate to curb demand and reduce inflation. Conversely, during economic recessions or periods of slow growth, the Fed may lower interest rates to encourage borrowing and investment, thereby stimulating economic activity. Changes in the federal funds rate not only affect U.S. domestic markets but also have a significant impact on global financial markets. As a result, each adjustment to the federal funds rate reflects U.S. economic conditions and often becomes a focal point for financial markets worldwide.

The chart shows a strong correlation between the federal funds rate (represented by the orange line with triangles) and the average interest rate on a 30-year fixed mortgage in the U.S. (represented by the orange line with circles). In statistics, the correlation coefficient ranges from -1 to 1, where 1 indicating a perfect positive correlation and -1 indicating a perfect negative correlation. A coefficient with an absolute value between 0.7 and 0.9 indicates a high level of correlation. This strong correlation suggests that changes in the federal funds rate have a direct impact on long-term fixed mortgage rates.

Since the end of 2007, the Federal Reserve has kept the federal funds rate near zero for an extended period to stimulate the economy, a practice that was rare before 2007. Fixed mortgage rates are typically higher than the federal funds rate, and can be viewed as the federal funds rate plus the influence of broader economic and market factors. When the federal funds rate is low, its impact on mortgage rates diminishes. For instance, from 2008 to 2014, the federal funds rate averaged just 0.4%, and the correlation between the federal funds rate and the average 30-year mortgage rate weakened to 0.66. During this time, mortgage rates were more influenced by other economic and market conditions.

The Case-Shiller Home Price Index and U.S. 30-year fixed mortgage rate

Since the 1990s, mortgage rates in the United States have consistently declined, reaching a record low of 2.68% for the average 30-year fixed mortgage by the end of 2020. As mortgage rates have fallen, home prices have steadily risen, with the Case-Shiller Home Price Index rising from 77 in 1990 to over 300 by the end of 2022. One can imagine that if the average mortgage rate had remained at 10%, as it was in 1990, the current real estate market would look very different. However, it is unlikely that mortgage rates will return to levels above 10% as seen in the 1990s. This is primarily due to the Federal Reserve’s maintenance of a relatively low inflation target since the beginning of the 21st century, currently set at 2%. Consequently, there is generally no need for significant interest rate increases. Furthermore, high interest rates would raise the cost of debt, and both the U.S. government and individuals are currently burdened with substantial debt. Elevated interest rates would also strengthen the dollar, potentially harming the competitiveness of American companies in international trade.

From 1990 to 2022, the correlation coefficient between the Case-Shiller Home Price Index and the average interest rate on 30-year fixed mortgages was -0.744, indicating a significant negative correlation between the two. In other words, as mortgage rates rise, home prices typically decline, and vice versa. Further analysis reveals that the correlation coefficients between loan rates and home price indices one month, three months, six months, and one year later were -0.746, -0.751, -0.758, and -0.766, respectively. The strength of the correlation increases over time, suggesting that changes in mortgage rates have a lagging and persistent effect on home prices. This phenomenon underscores the profound impact of interest rate adjustments on the real estate market, especially regarding their influence on long-term market trends.

Analysis of Supply and Demand in the U.S. Residential Housing Market

To understand future trends in home prices, the most direct approach is to analyze the changes in supply and demand within the housing market. We can derive valuable insights from three key variables drawn from the Federal Reserve Economic Data: the total number of housing units in the United States, the number of family houses for sale, and the number of family houses sold. These variables allow us to create two significant curves that reflect the dynamics of supply and demand. In the chart below, the blue line represents the proportion of homes for sale relative to the total number of homes in the U.S., while the orange line illustrates the proportion of sold homes in relation to the overall housing stock.

Since the 1990s, we have observed a gradual increase in the proportion of homes for sale, rising from less than 0.45% at the beginning of 1991 to over 1% by 2005. As the supply of homes grew, sales began to weaken toward the end of the century, exacerbating the imbalance between supply and demand. Following the economic recession triggered by the subprime mortgage crisis, the proportion of homes for sale dropped to an unprecedented low, and available listings were rapidly absorbed by the market. It was not until 2012 that the supply and demand in the housing market began to stabilize.

The COVID-19 pandemic in 2020 significantly altered the supply and demand dynamics in the U.S. housing market. Initially, lockdown measures resulted in an increase in available listings as homeowners sought to sell. However, this trend quickly reversed, and the supply of homes plummeted dramatically, falling from 0.7% to below 0.4%. As existing homes were sold quickly, a supply shortage emerged, leading to a surge in home prices.

The chart indicates that although the growth rate of homes for sale has outpaced that of sold homes in recent years, the overall supply and demand situation remains healthy. The two ratios at the end of 2023 are closely aligned with those from 1990. This suggests that while the market is experiencing fluctuations, a balance exists that could support continued stability in home prices moving forward. Understanding these trends in supply and demand is crucial for predicting future developments in the housing market and for making informed decisions by buyers, sellers, and investors alike.

2024 U.S. Residential Housing Market Analysis Summary

Although rising home prices in recent years have intensified real estate bubbles in certain areas, there is no need for excessive concern about the overall U.S. market.
Despite a significant cooling of the real estate market in 2024, a collapse similar to that of 2008 is unlikely in the short term.
Compared to the stock market, real estate has shown greater stability, particularly showing resilience against short-term economic downturns.
When issues arise within the housing market, leading to a decline, recovery is often a lengthy process, and reversing this trend is not easy.
The COVID-19 pandemic spurred a sharp rise in home prices, exacerbating the housing bubble and making homes increasingly unaffordable.
There is a strong positive correlation between the federal funds rate and U.S. mortgage rates, with changes in the former directly impacting mortgage rates.
When the federal funds rate is low, its influence on U.S. mortgage rates lessens.
Due to the Federal Reserve setting a relatively low inflation target, extremely high mortgage rates above 10% are unlikely to return.
U.S. home prices and mortgage rates have a significant negative correlation, with changes in interest rates having a delayed and persistent effect on home prices.
Although the growth rate of homes for sale has outpaced that of sold homes in recent years, the overall supply and demand situation remains healthy.

Why choose me ?

Dong is a broker partner who joined Giving Tree Realty in 2024. As a professional realtor, Dong is trustworthy, dependable, and well-organized. He understands the demands placed on a real estate agent who must juggle seller and buyer clients, meetings, and paperwork.

Triangle Homes