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The average home price in the US soared roughly 85% in the past decade. But as we all know, averages are misleading and often distorted. In some areas pricing has soared well beyond 85%, especially in the past 3 years. By any standards, this is HYPER pricing inflation. And that usually does not end well. Most times it is unsustainable. So why have home prices soared so far, so fast, aside from excess cheap capital? Here are some reasons:
What happens after hyper-inflationary periods? It varies. Some areas pull back more than others. Some pull back slowly, some quickly, and others not at all. There are so many variables. We can be certain that the extreme house-flation we saw in some areas of the US impacted national averages.....which fuels overall inflation when housing represents about 32% of CPI. The Fed does not regionalize its policies, so the entire US is lumped together as one economy, and we will all be impacted by higher rates.
Between 1967 and 2022, housing experienced an average inflation rate of about 4.21% per year (more than double 2% target inflation)......10, 15, 20% annual gains are extreme by any standards. (PS: I'll take 4.21%!)